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Early termination fee ETF
Also called termination fee, cancellation fee, breakage fee.
A charge for exiting a facility before its stated term, standard in factoring and equipment lease contracts and usually sized to what the provider expected to earn from the remaining term.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
Factoring agreements are written for a term, commonly with automatic renewal unless notice is given inside a defined window. Leaving early triggers a termination fee, and frequently more than that: unmet monthly minimums for the balance of the term, plus a holdback of your reserve until the outstanding invoices have cleared their recourse period.
Equipment leases handle it differently. There is usually no right to terminate at all. What is available is a buyout quote, calculated as the remaining rents, often undiscounted or discounted at a rate favorable to the lessor, plus the residual value.
In both cases the fee is not a penalty for misbehavior; it is the provider protecting the return it underwrote to when it priced the deal.
Where this one catches people
Exit cost is rarely a single line. In factoring, read the termination fee clause, the minimum volume clause, the notice window and the reserve release clause as one thing, because they operate together. A business that gives notice a week late can find itself locked in for another full term at minimums it is no longer generating.
Where you will meet this term
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Early termination fee — common questions
What does early termination fee mean?
A charge for exiting a facility before its stated term, standard in factoring and equipment lease contracts and usually sized to what the provider expected to earn from the remaining term.
Where does early termination fee catch people out?
Exit cost is rarely a single line. In factoring, read the termination fee clause, the minimum volume clause, the notice window and the reserve release clause as one thing, because they operate together. A business that gives notice a week late can find itself locked in for another full term at minimums it is no longer generating.
Is early termination fee the same as an interest rate?
Early termination fee 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 early termination fee apply to?
Equipment Financing, Invoice Financing, Asset-Based Lending, Credit Card Processing.
Is there a worked example of early termination fee?
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 early termination fee?
Auto-renewal, End-of-term option, Exit fee, Minimum Volume Fee, Notice Provision.
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.