Early termination fees, and how to get out cleanly.

Two very different kinds of exit fee

A flat early termination fee is a stated amount in the agreement. You know what it is, you can decide whether leaving is worth it, and the arithmetic takes a minute.

A liquidated damages clause is not a fixed number. It estimates the profit your processor expects to lose over the months remaining and bills you for it, usually based on your average monthly processing revenue to them multiplied by the months left. On a long remaining term with decent volume, this can be substantially more than merchants expect.

The two are written very differently in a contract. A flat fee says an amount. Liquidated damages says a formula. Find out which one you have before anything else, because it changes whether leaving now is even sensible.

Where to look

In your merchant agreement, look for a section headed Term, Termination, Early Termination or Liquidated Damages. The clauses you want to read:

• The initial term and whether it auto-renews. Many agreements renew for successive one-year terms unless you give notice in a window — often 30 to 90 days before the anniversary. Miss that window and you are in for another year.
• The notice requirement. Some require written notice by post. Email to your rep is not always notice.
• What the fee is — flat amount or formula.
• Whether equipment is separate. Almost always yes.

If you cannot find the agreement, ask your processor for a copy. They are obliged to be able to produce what you signed.

The equipment lease is the real trap

This catches more people than the termination fee itself. Terminal leases are frequently written with a separate finance company, for a term often as long as 48 months, and marked non-cancellable. Closing your merchant account does nothing to it. You keep paying, monthly, for a terminal you no longer use, sometimes for years.

Three things worth checking today, whether or not you are thinking of switching:

1. Is there a monthly equipment charge on a statement from a company whose name is not your processor’s?
2. What is the end date of that agreement?
3. Does it auto-renew, and does it have a buyout?

A merchant who leases rather than owns their terminal has two contracts, two end dates and two exit costs. Most assume they have one.

Running the arithmetic properly

Before you decide, work out three numbers:

1. Your monthly saving. Not the headline rate difference — the real difference. Calculate your effective rate, work out what the same volume costs under the new pricing including every fixed fee, and take the difference.
2. Your exit cost. Termination fee plus any lease buyout.
3. The payback period. Exit cost divided by monthly saving, in months.

If the payback is three or four months, leaving is obvious. If it is two years, it is not, and the honest answer may be to wait for the term to end and switch cleanly. That is a legitimate outcome and you should be suspicious of anyone who refuses to reach it.

Asking for it to be waived

Worth doing, and worth doing in writing before you give notice:

• Ask the retention team, not your original rep. They have different authority.
• Be specific about why: service failures, unexplained fee increases, a rate that was reviewed without clear notice.
• Ask what they can do to keep you as well. Sometimes the counter-offer is better than the switch, and if it is, take it — the goal is a lower bill, not a new logo on the statement.
• Get any waiver in writing before you close the account.

What we do about it

We ask to see your current contract before we ask you to sign ours. If there is an early termination fee or a live lease, we will say so and put it into the comparison, because a saving that is wiped out by an exit cost is not a saving.

And if the arithmetic says stay where you are for another eight months, that is what the email will say. Send the statement and the agreement and we will tell you which it is.

Nothing on this page is legal advice. A contract is a contract, and for anything substantial, have a lawyer read it.