Termination fee

A penalty for leaving the factoring agreement before the contract ends or without giving proper advance notice. The amount depends on how the formula is written.

Why it matters

Termination fees can be much larger than expected when calculated on a remaining-term basis rather than a flat amount. A contract with 6 months remaining and a $1,500 monthly minimum could carry a $9,000 termination obligation under a remaining-term formula. Automatic renewal clauses can restart the full contract term if the notice window is missed, resetting the termination fee exposure. Understand the exact calculation formula—not just whether a fee exists—before signing.

How it appears in contracts

The termination fee clause appears under 'Termination,' 'Early Termination Fee,' or 'Liquidated Damages.' The three most common calculation formulas are: (1) a flat dollar amount stated directly in the contract; (2) a multiple (often 3 to 6 months) of the average monthly fee earned or the monthly minimum, whichever is greater; and (3) the total fees that would have been earned over the remaining contract term based on either minimum volume or trailing average volume. Formula (3) produces the largest and most variable amount. Read this clause in conjunction with the auto-renewal section—if the contract has already renewed, the remaining term restarts, and the termination fee resets to the full new-term amount.

Related terms

Related article: What is invoice factoring?

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.