Chargeback (in Factoring)
In factoring, a chargeback is when a factor charges an unpaid or disputed invoice back to the client, reversing the advance it made. Chargebacks arise in recourse factoring, where the client, not the factor, bears the credit risk if the account debtor does not pay.
Chargebacks and recourse
Chargebacks are a feature of recourse factoring. As covered under recourse versus non-recourse factoring, the client keeps the credit risk, so an unpaid invoice comes back to the client, usually deducted from the reserve. Non-recourse absorbs debtor insolvency but usually still allows chargebacks for disputes.
Common triggers and why it matters
Triggers include non-payment past a set period, disputes and short-pays (a form of dilution), and invalid invoices found after funding. A book full of chargebacks signals weak verification. Zolvo automates invoice verification and reconciliation so factors prevent avoidable chargebacks rather than processing them after the fact.