Glossary
Discount Rate
In supply chain finance and early payment programs, the discount rate is the percentage deducted from an invoice’s face value in exchange for early payment. It represents the cost of accessing liquidity before the invoice’s due date. A lower discount rate means cheaper early payment for the supplier.
What It Is
The discount rate in supply chain finance is not the same as the macroeconomic discount rate used in central banking or discounted cash flow models, though the underlying principle is the same: it expresses the time value of money. Receiving €98,500 today is worth more to many suppliers than receiving €100,000 in 90 days, because that €98,500 can be put to work immediately.
In practice, the discount rate reflects the buyer’s creditworthiness (in reverse factoring), the number of days of early payment requested, and prevailing market interest rates.
How It Is Calculated
For early payment programs, the discount rate is typically expressed as an annualised percentage, then applied to the specific number of days:
Discount Amount = Invoice Value × Annual Rate × (Days Early / 365)
Example: €100,000 invoice, 60 days early, 6% annual rate:
€100,000 × 6% × (60/365) = €986 discount
Supplier receives €99,014.