Glossary · contract

Attorneys' fees clause

Also called fee shifting clause, collection costs clause, legal fees provision.

The term making the business pay the funder's legal and collection costs on default, often as a fixed percentage of the balance rather than actual costs incurred.

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

The American rule is that each side pays its own lawyers unless a statute or contract says otherwise. Funding contracts say otherwise. Two versions appear. Actual-cost clauses shift reasonable fees genuinely incurred, and a court reviewing them will normally test reasonableness. Liquidated clauses add a stated percentage of the outstanding balance as collection costs on default, whether or not a lawyer does any work.

The second version can be challenged. Courts in several states treat a percentage add-on that bears no relationship to actual expense as an unenforceable penalty rather than valid liquidated damages, but the analysis is state-specific and the burden sits with the party contesting it.

Note how it compounds. The fee percentage is applied to the accelerated balance, which on a cash advance is the unpaid purchased amount rather than the unpaid advance. So the fee is charged on money that includes the whole unearned discount.

Most of these clauses run one way. The funder recovers its costs if it enforces; there is usually no reciprocal right for the merchant who successfully defends. A minority of states have statutes making one-way fee provisions in certain contracts reciprocal by operation of law, which is another reason the governing-law clause matters.

Where this one catches people

The number people focus on at signing is the factor rate. The number that decides what a default costs is this clause plus acceleration plus default interest, stacked on top of each other. A balance that looked like a shortfall of tens of thousands becomes a judgment demand substantially larger once collection costs, default fees and interest are added.

Worked through

Unpaid purchased amount at default is 107,000. A contractual collection-costs provision of 25 percent adds 26,750, and a default fee and accrued default interest are applied on top. The judgment sought exceeds 135,000 on an advance of 100,000 made a few weeks earlier.

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

Merchant Cash Advance Working Capital Term Loan Equipment Financing

Read next

Acceleration clauseThe clause that makes everything still owed due immediately on default, rather than on the original schedule. Arbitration clauseA contract term sending disputes to a private arbitrator instead of a court, usually alongside a jury waiver … CollectionsWhat a funder does to recover a defaulted balance, from internal calls and restructures through third-party a… Confession of judgment (COJ)A pre-signed admission of liability that lets a funder obtain a court judgment on default without suing you, … DefaultThe condition of having broken an agreement, by missing payments or by breaching any other promise in it, whi… Default rateThe pricing a contract applies after a default: an elevated interest rate on a loan, or on a purchase agreeme…

Attorneys' fees clause — common questions

What does attorneys' fees clause mean?

The term making the business pay the funder's legal and collection costs on default, often as a fixed percentage of the balance rather than actual costs incurred.

Where does attorneys' fees clause catch people out?

The number people focus on at signing is the factor rate. The number that decides what a default costs is this clause plus acceleration plus default interest, stacked on top of each other. A balance that looked like a shortfall of tens of thousands becomes a judgment demand substantially larger once collection costs, default fees and interest are added.

Is attorneys' fees clause the same as an interest rate?

Attorneys' fees clause 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 attorneys' fees clause apply to?

Merchant Cash Advance, Working Capital, Term Loan, Equipment Financing.

Is there a worked example of attorneys' fees clause?

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 attorneys' fees clause?

Acceleration clause, Arbitration clause, Collections, Confession of judgment, Default.

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.