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Termination fee
Also called early termination fee, exit fee, cancellation fee.
A charge for ending a facility before its contracted period expires, standard in factoring and asset-based agreements and often paired with automatic renewal.
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 and ABL agreements typically run for a stated period — often a year or more — and are priced on the assumption of that volume. Leaving early triggers a fee, calculated as a percentage of the facility limit, as the minimum fees that would have been earned over the remaining period, or as a flat sum stepping down over time.
The more consequential clause is usually next to it: evergreen renewal. The agreement renews automatically for a further full period unless written notice is given inside a specified window — commonly thirty to ninety days before the anniversary, and sometimes no earlier than that either. Miss the window and the business is committed for another full term, with the termination fee applying to it.
Minimum volume or minimum fee provisions do related work during the term. If the business factors less than the agreed floor, the shortfall is charged anyway, which converts a usage-based product into something closer to a fixed cost.
Where this one catches people
The notice window is a window, not a deadline. Giving notice too early can be as ineffective as giving it too late, because many agreements require notice within a specific band before the anniversary. Businesses diary the anniversary, not the window, and renew for a full additional year by accident — then find the exit priced at the remaining minimum fees.
Worked through
Illustrative only. A factoring agreement with a $500,000 limit, a 2 percent early termination fee on the limit, and 18 months remaining. Exiting costs $10,000 plus any monthly minimum fee shortfall for the remaining period, which on a $2,000 monthly minimum adds a further $36,000 if the calculation is written that way.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Termination fee — common questions
What does termination fee mean?
A charge for ending a facility before its contracted period expires, standard in factoring and asset-based agreements and often paired with automatic renewal.
Where does termination fee catch people out?
The notice window is a window, not a deadline. Giving notice too early can be as ineffective as giving it too late, because many agreements require notice within a specific band before the anniversary. Businesses diary the anniversary, not the window, and renew for a full additional year by accident — then find the exit priced at the remaining minimum fees.
Is termination fee the same as an interest rate?
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 termination fee apply to?
Business Line of Credit, Invoice Financing, Asset-Based Lending.
Is there a worked example of termination fee?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside termination fee?
Evergreen Clause, Invoice factoring, Minimum Volume Fee, Notice Provision, Prepayment penalty.
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.