Updated 2026-05-19

Chargeback

When the factor returns an invoice to the seller because it was not paid, disputed, or otherwise ineligible—and requires the seller to cover the advance that was already paid out.

Why it matters

Chargebacks can reduce available reserve quickly and unexpectedly. Most business owners focus on non-payment as the main trigger, but disputes, short pays, and dilution events can trigger chargebacks on invoices that the seller considers current. Read every trigger in the chargeback clause separately, not just the headline recourse period, before signing.

How it appears in contracts

The chargeback clause—sometimes titled 'Repurchase Events' or 'Right of Recourse'—will enumerate specific trigger events. Common triggers to locate individually: (1) invoice aging past the recourse period; (2) receipt of a dispute notice from the debtor; (3) debtor's filing for bankruptcy (in recourse programs); (4) short payment below a defined threshold; (5) discovery that an invoice was ineligible at the time of funding due to a warranty breach; and (6) dilution exceeding a contractual threshold. The chargeback amount is usually defined as the funded advance plus any fees that accrued, and the obligation is satisfied from the reserve or by cash payment. Confirm whether the factor must notify you before exercising a chargeback or may debit the reserve without prior notice.

Related terms

• UCC-1
• Lockbox
• Assignment of receivables
• Aging report