Monthly discount rate vs flat discount: which one you are actually paying
One quote says 1.5% a month, another says a 3% flat discount. Which is cheaper?
Two quotes for the same invoice can look completely different and still be the same deal. One funder quotes a discount rate per month; another takes a flat discount off the face value. Neither is wrong, but they do not answer the same question, and comparing the headline numbers directly is the most common way businesses talk themselves into the wrong one.
What each one actually charges
A discount rate is a percentage charged per month on the amount advanced, and it only runs for as long as the money is out. A flat discount is a percentage taken once, off the face value of the invoice, regardless of how many days pass. Some funders charge the discount rate as a minimum period — a “30-day minimum” means a 20-day gap still costs as if it were 30.
That minimum is the detail that catches people. It is the reason a fifteen-day payment gap can cost the same as a thirty-day one, and it is worth asking about before anything else.
| Pricing | 30-day gap | 60-day gap | 90-day gap |
|---|---|---|---|
| 1.5% per month on 80% advance | $710 | $1,420 | $2,129 |
| 3% flat off the invoice | $1,800 | $1,800 | $1,800 |
| 4.5% flat off the invoice | $2,700 | $2,700 | $2,700 |
Read that table down the columns rather than across the rows. On a thirty-day gap the monthly rate is clearly cheaper. On a ninety-day gap it is not — the monthly rate has overtaken the 3% and is still cheaper than 4.5% but only just. On a $100,000 invoice the same three lines apply with everything scaled up, except the flat discount, which scales too; the crossover point moves only with the gap and the rate, never with the invoice size.
The crossover is the only number that matters. Solve for the gap at which the two prices meet — about 76 days at 1.5% per month against a 3% flat discount on this invoice — and everything above it favours the monthly rate, everything below it favours the flat discount.
Why funders offer both
Neither structure is a trick, and each suits a different part of the market. A funder quoting a flat discount is pricing certainty: they know exactly what they will earn on the invoice, whatever happens with the debtor. A funder quoting a monthly rate is selling the option to hold the facility open across many invoices, where the average gap is long but individual invoices settle at different times.
If most of your invoices settle around thirty to forty-five days, a flat discount is usually the safer read. If your payment terms run to ninety days and vary widely, the monthly rate is probably cheaper. What matters is that you work out the crossover against your own actual gap, not against a worst case.
The part neither quote tells you
Both figures above ignore the one-off fees: registration, assessment, platform charges, and any reserve. Those land once per invoice and come straight out of the amount that reaches your account, which raises the effective cost of both structures. A flat discount that looks cheaper on the discount alone can be the more expensive option once a fixed setup fee is added to a small invoice.
And neither quote tells you whether the withheld amount is recourse. That question can change the answer more than the pricing does.
Compare them on the same basis. The calculator prices your invoice either way, adds your one-off fees, and gives you the effective annual cost on the cash you actually receive — so the two structures end up measured the same way. Then send the result to a licensed business finance broker for a free review.