Material is usually the largest single cost on a reroof, and suppliers often quote terms like 2/10 net 30. Whether you take that discount is a financing decision, and most contractors make it by feel. It should be made with a number.
What the Terms Mean
2/10 net 30 means you may deduct 2% if you pay within 10 days. Otherwise the full invoice is due in 30 days. The real choice is not "2% off or not." It is whether to pay 20 days early in exchange for 2%.
The annualized value of that trade is:
- (discount ÷ (1 − discount)) × (365 ÷ days accelerated)
- (0.02 ÷ 0.98) × (365 ÷ 20) = about 37.2%
Skip the discount and you are effectively borrowing from your supplier at that rate. Few credit lines cost anywhere near it.
Worked Example: A $48,000 Material Invoice
Illustrative numbers. A commercial re-roof with a $48,000 shingle, underlayment, and accessories invoice on 2/10 net 30 terms. Assume your credit line costs 10% a year.
| Pay on day 30 | Pay on day 10 | |
|---|---|---|
| Cash paid | $48,000 | $47,040 |
| Line interest to fund 20 extra days | — | $258 |
| Net benefit of paying early | $702 | |
The interest is $47,040 × 10% × 20 ÷ 365 = $258. The discount is $960. If you take it on $600,000 of annual material purchases, that is $12,000 of cost out of the job, before any interest you pay to fund it.
On a 12% net-margin business, $12,000 is the profit on about $100,000 of revenue.
When Not to Take It
- You would miss payroll. Payroll and tax deposits come before a discount. Funding early payment from the last of your cash is how a good job turns into a cash crunch.
- The line is maxed. If there is no cheap money to bridge the 20 days, the math changes.
- Your customer pays late. Pay early with a slow-paying GC on the other side and you are financing the project twice. See seasonal cash flow planning.
- The discount is conditional. Read the terms. Some suppliers exclude freight, tax, or certain product lines from the discountable amount.
Recording It by Job
- Enter the bill with the terms and the job. Set the vendor's terms so the due date and discount date are visible in your bill pay list.
- Post the discount against the job's materials cost. Do not dump it in other income. A discount is a lower material cost, and your job costing margin should reflect it. Confirm treatment with your CPA.
- Pay on the discount date, not the due date. Schedule payments by date so a 10-day window is not missed by a day.
- Track discounts taken and discounts missed. The missed total is a number worth reviewing monthly.
Keep your cost inputs current too. See material cost increases and job costing.