Understanding Discounting Types

Understanding Discounting Types

The Finverity platform supports two discounting methods - present value discounting and straight discounting. The present value discounting is applied to all created by default and can be changed to straight discounting at any time by enabling the Straight Discount option.

Present value discounting

Present value discounting calculates interest solely on the actual amount invested (disbursed to the seller). Compared to the straight discounting, it results in less discount fees paid by the seller and less returns earned by the funder. The system uses the following formulas to calculate the seller fee and advanced amount when present value discounting is enabled:
  1. Seller Fee = (Invoice Face Value * Advance % to Seller) - ((Invoice Face Value * Advance % to Seller) / (1 + Tenor / 360 * Total Fee (Annualised))) * Fee paid by Seller %
  2. Advanced Amount = (Invoice Face Value * Advance % to Seller) - Seller Fee
Example transaction:
Invoice Face Value
$100.000
Funding Date
28/02/2023
Repayment Date
29/05/2023
Tenor
90 days
Total annualised fee
10%
Fee paid by Seller
100%
Fee paid by Payer
0%
Advance % to Seller
100%

Using the straight discounting formulas:
  1. Seller Fee = (100000 * 100%) - ((100000 * 100%)) / (1 + 90 / 360 * 10%)) * 100 %
    Seller Fee =  2.439,02
  2. Advanced Amount = (100000 - 2.439,02) * 100%
    Advanced Amount =  97.560,98

Straight discounting 

Straight discounting is a method of applying discounts where the interest is calculated based on the face value of the invoice, taking into account an advance rate if applicable. The system uses the following formulas to calculate the seller fee and advanced amount when straight discounting is enabled:
  1. Seller Fee = Tenor / 360 * Total Fee (Annualised) * Fee Paid by Seller % * Invoice Face Value * Advance % to Seller
  2. Advanced Amount = (Invoice Face Value * Advance % to Seller) - Seller Fee
Example transaction:
Invoice Face Value
$100.000
Funding Date
28/02/2023
Repayment Date
29/05/2023
Tenor
90 days
Total annualised fee
10%
Fee paid by Seller
100%
Fee paid by Payer
0%
Advance % to Seller
100%

Using the straight discounting formulas:
  1. Seller Fee = 90 / 360 * 10% * 100% * 100000 * 100%
    Seller Fee = 2.500
  2. Advanced Amount = (100000 - 2500) * 100%
    Advanced Amount = 97.500