What Happens If There's a Dispute on a Factored Invoice?
Disputed invoices are excluded from the facility. The provider will "re-assign" the invoice back to you and debit the advance from your available funds. You then resolve the dispute with your customer directly. This is important: non-recourse protection does not cover disputes - it only covers customer insolvency. A dispute means the provider gives you the problem back.
When a factored invoice is disputed, the provider excludes it from the facility, debits the advance from your account, and re-assigns the invoice to you. You must resolve the dispute with your customer directly. Non-recourse/bad debt protection does not cover disputes - only customer insolvency. More detail + scope
This page covers
How disputed invoices are handled in factoring and invoice discounting
Not covered here
Customer insolvency (see /questions/customer-gone-into-administration/), invoice finance risks (see /questions/invoice-finance-risks/)
Why Providers Exclude Disputes
The provider advanced money against a clean invoice - one they expected to be paid in full. A dispute means the customer is saying they will not pay (or will not pay in full). The provider cannot collect on a disputed debt, so they pass the risk back to you. This applies whether you have recourse or non-recourse terms.
What This Means for Your Cash Flow
If a £20,000 invoice is disputed and the provider debits the advance, you suddenly have £17,000 less in your available funds (assuming 85% advance). If disputes are rare, this is manageable. If disputes are frequent - common in construction - it can create real cash flow volatility. Factor this into your planning.
How to Protect Yourself
Get signed delivery notes and purchase orders before invoicing. Resolve disputes quickly - the faster a dispute is settled, the faster the invoice returns to the funded ledger. Issue credit notes promptly for genuine overcharges. And keep dispute rates low - providers watch this metric closely, and high dispute rates can lead to reduced facilities or higher costs.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind Market Invoice. He spent over three years as managing director of Penny, a UK invoice finance business, and his career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library.
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