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Clawback
Also called commission clawback, recapture.
A contractual right to take back money already paid, most often a broker's commission when a funded deal defaults early or pays off early.
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What it means
In broker agreements, commission is earned on funding but is conditional for a period afterwards. If the merchant defaults inside a defined window, commonly measured in payments or days, or if the advance is paid off or refinanced early, the funder recovers all or part of the commission, usually by netting it against commissions on the broker's next deals.
The clause exists because a broker paid at funding has no exposure to what happens next. A first-payment default costs the funder the whole advance and the broker nothing, unless something claws it back. Sliding scales are common, with the recoverable share falling as the merchant makes payments.
The knock-on effect reaches merchants. A broker facing clawback on early payoff has a direct financial interest in the merchant not refinancing quickly with someone else, and in the merchant surviving the first weeks of payments. Whether that produces better or worse advice depends on the broker.
The word also appears in other places: a factor reversing an advance on a disputed invoice, a funder reversing a funding where verification fails after the wire, and in bankruptcy, a trustee recovering preferential payments made in the period before a filing, which is a statutory power rather than a contract term.
Where this one catches people
Merchants sometimes learn about clawback indirectly, when a broker who was attentive before funding becomes hostile to an early payoff or refinance. Understand that this is a fee protection issue for the broker and has nothing to do with whether refinancing is right for the business. Their compensation clock is not your interest rate.
Where you will meet this term
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Clawback — common questions
What does clawback mean?
A contractual right to take back money already paid, most often a broker's commission when a funded deal defaults early or pays off early.
Where does clawback catch people out?
Merchants sometimes learn about clawback indirectly, when a broker who was attentive before funding becomes hostile to an early payoff or refinance. Understand that this is a fee protection issue for the broker and has nothing to do with whether refinancing is right for the business. Their compensation clock is not your interest rate.
Is clawback the same as an interest rate?
Clawback is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does clawback apply to?
Merchant Cash Advance, Working Capital, Business Line of Credit, Equipment Financing.
Is there a worked example of clawback?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside clawback?
Backend fee, Bankruptcy, Broker agreement, Buyout, Commission.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.