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Discount rate
Also called discount fee, factoring discount, merchant discount rate.
Three different charges share this name: the factor's fee as a percentage of invoice face, the slice a card processor keeps from each sale, and the rate used to present-value future cash.
Drafted with AI assistance and checked by a person. Its factual claims were verified against the sources listed at the end, by Find Me Funders research desk.
What it means
In factoring
The percentage of an invoice's face value the factor keeps as its fee, quoted per period. The period is the point. A rate quoted per 30 days applies again each time an invoice crosses another 30-day boundary, so the cost of a given invoice depends on the debtor's payment habits rather than on the headline.
In card processing
The merchant discount rate is the percentage of each transaction the processor retains, made up of interchange, network assessments and the processor's margin. Interchange-plus pricing splits those out; tiered pricing bundles them and is where most merchant overcharging lives.
In finance generally
The rate used to convert future cash flows into present value. Relevant here because a funder's economics are built on discounting a stream of daily remittances, which is also how anyone comparing offers should think about their own side.
Where this one catches people
A factoring discount rate quoted per period is not the cost of the invoice. Against a ledger paying at 55 days, a rate quoted per 30 days is charged twice. Ask two questions before comparing quotes: what is the period, and does the clock start on purchase or on invoice date. The second question moves the answer by several days on every invoice.
Where you will meet this term
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Sources and checks
Every figure on this page traces to a document someone read, on a date. Where a check is past its review date it says so rather than passing as current.
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a discount rate quoted per 30 days is charged twice against a ledger paying at 55 days
exampleA 55-day settlement crosses one 30-day boundary: days 1-30 are the first period and days 31-55 fall in the second, so two periods of fee are earned. ceil(55/30) = 2. The trap's arithmetic is correct. Note for the editor: this entry's 'example' field is empty in the source data; there was no worked example to recompute.
Discount rate — common questions
What does discount rate mean?
Three different charges share this name: the factor's fee as a percentage of invoice face, the slice a card processor keeps from each sale, and the rate used to present-value future cash.
Where does discount rate catch people out?
A factoring discount rate quoted per period is not the cost of the invoice. Against a ledger paying at 55 days, a rate quoted per 30 days is charged twice. Ask two questions before comparing quotes: what is the period, and does the clock start on purchase or on invoice date. The second question moves the answer by several days on every invoice.
Is discount rate the same as an interest rate?
Discount rate 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 discount rate apply to?
Invoice Financing, Credit Card Processing.
Is there a worked example of discount rate?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside discount rate?
Advance rate, Days sales outstanding, Effective APR, Factoring commission, Float.
Has this definition been checked?
Yes. Its claims were verified against the sources listed at the end of this page, and the reviewer is named.
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.