Updated 2026-05-19

Subcontractor dispute

A problem with subcontracted work that can affect whether the customer pays the invoice.

Why it matters

Subcontractor disputes can create setoff, credits, customer payment refusal, and invoice eligibility issues in construction and project-based factoring. When a general contractor refuses to pay a subcontractor invoice because of a dispute with a sub-subcontractor or because the work does not meet specifications, the factored invoice is at risk even though the deficiency may be downstream of the factoring seller relationship. Factors for construction subcontractors must evaluate the probability of payment disputes up the contract chain before funding milestone invoices on large projects.

How it appears in contracts

Subcontractor dispute provisions in construction factoring agreements appear in the Eligible Receivables section and typically exclude invoices that are subject to any unresolved dispute or pending claim. Sellers must represent that no disputes exist at the time of submission. If a dispute arises after funding, the seller is required to notify the factor within a defined period and provide documentation of the dispute and the steps being taken to resolve it. Construction disputes that cannot be resolved within the recourse period typically result in a chargeback, requiring the seller to repurchase or substitute the disputed invoice.

Related terms

• Dispute
• Setoff
• Chargeback
• Eligible receivable