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.
Quick Reference
Direct Answer
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.
Summary
Disputes are a key risk in invoice finance. Providers monitor dispute levels closely — if more than 5-10% of your invoices are disputed, they may reduce your facility or increase charges. Industries with high dispute rates (construction, particularly) face stricter terms. To minimise impact: resolve disputes quickly, issue credit notes promptly, and keep dispute communication documented.
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.
Oliver Mackman
Director, Market Invoice
Oliver leads Market Invoice's editorial and comparison research. With a background in UK commercial finance, he oversees provider analysis, rate verification, and industry reporting across all verticals.
Last reviewed: 7 April 2026