Every quote you will see for invoice finance leads with a monthly rate. It is the least useful number on the page.
A monthly rate is not an annual rate
"1.2% per month" is not 1.2% a year and it is not quite 14.4% a year either. It is 1.2% for each month the money is out, and the honest way to compare it against a bank overdraft is to annualise it over the days you actually hold the money.
On a ₹10,00,000 invoice at 60 days, a 1.2% monthly rate on an 80% advance is about ₹19,200 of discount charge. That is roughly 2.4% of the invoice - but you only had the money for two months, so the annualised cost is nearer 15%.
The three questions that matter
- What lands in my account on day one? Not the invoice value. The advance, less every fee deducted up front.
- What do I get at maturity? The retention, less anything the buyer short-paid.
- What is the total cost, in rupees? Every quote should give you this figure without you doing arithmetic.
If a quote does not answer all three, it is not a quote - it is an advertisement.
Fees hide in different places
Watch for a processing fee taken from the advance, a platform fee charged separately, GST on the fees (interest is exempt; fees are not), and stamp duty on any assignment. Each is defensible. What is not defensible is finding out about them after you have signed.
The one number to ask for
Ask for the annualised percentage rate over the actual tenor, and the total rupees. Then compare that against what your bank charges on a working capital limit. Sometimes the bank wins, and anyone unwilling to tell you that is not worth borrowing from.
Our calculator gives you all of it before you sign up for anything, and the rate is a slider precisely because the final number is the lender's to set, not ours.