Definition
A deduction a customer, often a retailer, takes from an invoice payment.
Why it matters
Frequent chargebacks reduce invoice eligibility and advance rates.
Where it shows up in a deal
A chargeback appears as a remittance smaller than the invoice, with a deduction code on the customer's payment advice. Retailers and large distributors generate them routinely for compliance failures, allowances and shortages, and the funder posts the shortfall against your reserve while the deduction is reconciled or disputed.
What it affects
- The shortfall comes out of your reserve, reducing cash you have already counted on.
- Unreconciled deductions keep the invoice open, and fees can keep accruing while it sits there.
- A pattern of deductions raises measured dilution, which lowers your advance rate at review.
- The same word describes a factor repurchasing an unpaid invoice under recourse - check which sense your agreement means.
A worked example
A retailer remits $94,200 against a $100,000 invoice, deducting $3,500 for a late shipment, $1,500 of co-op advertising and $800 for a labeling failure. At a 90% advance the reserve was $10,000; the $5,800 of deductions leaves $4,200, less the accrued fee, to release.
The common mistake
Related terms
- DilutionThe reduction in invoice value from credits, returns, discounts or disputes.
- ReserveThe portion of an invoice held back by a factor until the customer pays.
- Full-Recourse FactoringFactoring where the business must buy back invoices that customers don't pay.
- Eligible ReceivablesInvoices that meet a funder's criteria for advancing.
Questions about how chargeback affects your facility?
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