Glossary · Factoring
Termination fee
Also called: Early termination fee, Exit fee
Definition
A termination fee is a charge in a factoring contract that the carrier owes if it ends the agreement early or without the required notice.
Termination clauses take several forms: a flat fee, a percentage of average monthly volume multiplied by the months left in the term, or an auto-renewing term with a narrow notice window that the carrier misses. Some contracts also require the carrier to buy back all open invoices on exit.
For the factor, the fee recovers onboarding and underwriting costs on clients who leave early. Pushed too hard, it does damage. A client fighting a fee is slow to answer calls, and a factor that delays a letter of release or UCC-3 while it argues leaves brokers unsure who to pay.
Explain the term, renewal and exit costs in writing at signing. The guide to starting a factoring company covers contract basics. General information, not legal advice: have counsel review your contract terms.