Definition
The fee a factor charges, usually expressed per 30 days or per 10-day increment.
Why it matters
Discount rates typically range from 1% to 3.5% per 30 days.
Where it shows up in a deal
The discount rate is the headline number on the term sheet and a line item on every funding statement. What matters almost as much is the convention beside it: whether the fee is prorated daily, charged in 10- or 15-day increments, or charged as a full period the moment an invoice crosses into day 31.
What it affects
- It is applied to invoice face value, not to the cash advanced, so the advance rate does not reduce it.
- Increment-based billing can double the effective cost of a slow-paying invoice.
- Escalator clauses add percentage points once an invoice passes 30, 60 or 90 days.
- Volume, buyer credit, dilution and recourse terms are the levers that actually move it at renewal.
A worked example
A $50,000 invoice at 1.8% per 30 days costs $900 if the customer pays on day 30. Under a 15-day increment schedule at 0.9% per increment, payment on day 46 falls in the fourth increment: 4 x 0.9% = 3.6%, or $1,800. The rate never changed - the calendar did.
The common mistake
Related terms
- Advance RateThe percentage of an invoice's value a funder pays upfront.
- Net TermsThe number of days a customer has to pay, such as net 30 or net 60.
- Days Sales OutstandingThe average number of days it takes to collect payment after a sale.
- Factoring AgreementThe contract that sets advance rates, fees, recourse terms and duration.
Questions about how discount rate affects your facility?
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