Early termination fee

A charge for ending a factoring agreement before the stated term expires.

Why it matters

Early termination fees protect the factor expected revenue stream when a seller exits before the minimum contract term ends. Fee calculations vary by agreement: some charge a flat amount based on remaining months multiplied by average monthly volume; others charge a percentage of the maximum credit facility regardless of actual usage. A third method uses a percentage of outstanding advances at termination. Understanding which calculation method applies matters because a facility-percentage fee on a large credit line can be significantly higher than expected based on actual transaction volume.

How it appears in contracts

Early termination language appears in the Term and Termination section. Look for whether the fee applies only when the seller terminates, or also when the factor terminates for cause such as default. Some agreements waive the early termination fee if the seller provides extended notice of 60 or 90 days instead of the standard 30. Auto-renewal clauses can reset the termination window: if the seller misses the opt-out period, the contract renews for another full term, restarting the minimum period and its associated termination penalty calculation from the beginning.

Related terms

Related article: How invoice factoring works

Related reading

Sources

  • International Factoring Association - International Factoring Association. Accessed 2026-05-19. Industry association source for factoring terminology and industry context.
  • Secured Finance Network - Secured Finance Network. Accessed 2026-05-19. Industry education source for secured finance and asset-based lending context.
Financial disclaimer. This page is educational only and is not financial, legal, tax, accounting, or credit advice. Factoring terms vary by provider and contract. Read the full disclaimer.