Does a discount fee of 3% or 4% mean that my rate is 36% or 48% per year?
Absolutely not! This is a common misunderstanding; a client should not annualize the factoring fee or discount fee. Remember, you are not borrowing money with an interest rate, but rather paying a single financing or discount fee. For example, a discount fee of 3% for 30 days is a single one-time rate for submitted invoices. If terms are net 45, the actual rate could be a single one-time fee of 4% for 45 days. So the fees in the above examples are not 36% or 48%, but rather 3% or 4% depending on the invoice terms. The key here is not to annualize the discount fees; discount rates are for a specific period of time, say, 30 or 45 days, not a year.
