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Avoiding Early Termination Fees: A Guide

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Ryleigh Stangness | May 12, 2022

“Early termination fees (ETFs) what are they, how processors sneak them in and how to avoid being blindsided with hefty fees.”
3 min read
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    Businesses, like people, have to make hard choices sometimes, especially when it comes to parting ways with a service or product they've been using for a while.

    Maybe your payment processor has too many hidden or extra fees, and you need to find a new one. Or perhaps you've decided that a different provider is better suited to your needs with lower processing fees. Whatever the reason, terminating your contract with your old payment processor can feel daunting.

    One of merchants' most significant concerns is the early termination fees that payment processors charge as a penalty for leaving early. In this blog post, we'll discuss early termination fees(further down the article as ETF) and what to expect when you break your contract with your payment processor.

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    What are early termination fees, and why do payment processors charge them?

    Early termination fees (ETF) are a penalty charged by processors for leaving your contract early.

    Payment processors can implement these if:

    1. An ETF is stipulated in the fine print of your contract, and
    2. You leave your contract and break the terms of the agreement

    These fees can feel spiteful, but are meant to cover the cost of lost revenue from future payment processing. Processors will charge either a flat or prorated fee specified in your contract or a fee for liquidated damages, including unreturned equipment or restocking and refurbishing equipment. As much as ETFs cover lost profits and cancellation costs, they are meant to discourage merchants from leaving early.

    How to get out of paying ETF penalties

    If you are considering leaving your merchant account contract, you can read our complete guide here.

    Need a quick answer? Here's how to avoid those ETF penalties.

    • Look for loopholes in your contract
    • Negotiate and call your provider
    • Give proper notice

    In short, by reviewing your contract, the exact terms and dates, and the notice stipulations, you may find a way to break your contract penalty-free.

    You can even find a way out by reviewing renewal dates, notices, or changing rates.

    If not, sometimes paper and ink can fall flat, and all you need to do is give your processor a call and appeal with your personal human touch.

    How much will an ETF set me back?

    Not all payment processors require you to sign a year or more long contract, and of those, not all enforce an early termination fee. This is worth noting before choosing a new merchant provider in 2022.

    Most early termination flat fees are around $300. Still, they could be a certain percentage or your yearly processing amounts or more if your processor enforces a liquidated damages fee or if they sue.

    ETF comparison chart

    Before signing with a new merchant account, don't fall for common industry tactics. Ask them about their cancellation fees, whether they lease or sell their POS equipment, and whether there are any fees related to equipment lease cancellation as well.

    You've been charged an early termination fee. Now what?

    You might have done everything right and still been charged an ETF. Or are you dragging your feet to pay the penalty?

    You have three options (we don't recommend the third, by the way), you can take it to court, pay it, or put off paying it until it comes back to haunt you.

    You can find a few tips on avoiding getting sued or refuting ETFs in our blog post here if you think you've been lawfully wrongfully charged.

    However, if you are frustrated (understandably so) and don't want to pay it, here's why you should but the bullet and pay anyway. Your processor may send creditors after you, and it may affect your credit score and potential to find a new payment processor in the future.

    All that to say...

    So, what are early termination fees? They're essentially penalties payment processors charge when customers break their contracts before the agreed-upon date. The good news is that there are ways to avoid ETFs if you know what to look for and how to negotiate. And even if you have been charged an ETF, there are still steps you can take.

    If you need to get out of a contract with a payment processor, check your contract for stipulations on ETFs. Negotiate with the company if you can, and give proper notice if you choose to terminate your agreement. Remember, there might be options- it's just a matter of digging to find what works. Thanks for reading!

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