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Chargeback
Also called card dispute, invoice chargeback, recourse chargeback.
A reversal of money already credited to you, either a card transaction pulled back by the cardholder's bank or, in factoring, an unpaid invoice charged back to your reserve.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
## Card processing
A cardholder disputes a transaction, their issuing bank reverses it under the card network rules, and the amount plus a fee is taken from your merchant account. You can represent the transaction with evidence, but the process runs on the networks' timetables and reason codes, and disputes can arrive months after the sale. Networks operate monitoring programs with published ratio thresholds, and merchants who exceed them face fees, remediation programs and ultimately loss of processing.
## Factoring
A chargeback is what happens when a purchased invoice does not pay within the recourse period, or the debtor disputes it. Under a recourse facility, the factor charges the invoice back: the advance is recovered out of your reserve, or from the next batch of invoices, or by direct demand. Non-recourse facilities limit this to credit risk, meaning the debtor's insolvency, and still charge back disputes, short pays and anything caused by your own performance.
The two meanings collide in one place: a business with a split-funded advance against card sales, whose chargebacks reduce the settled volume the funder is collecting from, which triggers reconciliation questions.
Where this one catches people
Non-recourse factoring is widely read as a guarantee of payment. It is not. It typically covers only the debtor's financial inability to pay, often only after a formal credit approval on that debtor and sometimes only on insolvency. Every dispute about quality, delivery, pricing, offsets or short payment remains yours, and those account for most invoices that go unpaid.
Worked through
A factor advances 85,000 on a 100,000 invoice with a 90-day recourse period. The debtor disputes the work and pays nothing. At day 91 the factor charges back the invoice: 85,000 plus accrued fees comes out of the reserve on your other invoices, cutting availability immediately even though your other customers are paying on time.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Chargeback — common questions
What does chargeback mean?
A reversal of money already credited to you, either a card transaction pulled back by the cardholder's bank or, in factoring, an unpaid invoice charged back to your reserve.
Where does chargeback catch people out?
Non-recourse factoring is widely read as a guarantee of payment. It is not. It typically covers only the debtor's financial inability to pay, often only after a formal credit approval on that debtor and sometimes only on insolvency. Every dispute about quality, delivery, pricing, offsets or short payment remains yours, and those account for most invoices that go unpaid.
Is chargeback the same as an interest rate?
Chargeback is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does chargeback apply to?
Merchant Cash Advance, Invoice Financing, Credit Card Processing.
Is there a worked example of chargeback?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside chargeback?
Advance rate, Dilution, Invoice factoring, Recourse, Reserve.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.