CSLB Contractor's Law & Business Practice Exam

What kind of discount do lumber yards and other suppliers offer to contractors who pay their bill promptly?

1. 5-6% discount

2. 1-2% discount

3. 3-4% discount

4. No discount

The correct answer is: 1-2% discount

Lumber yards and other suppliers typically offer a prompt payment discount to encourage contractors to pay their bills quickly. This financial incentive is commonly structured as a 1-2% discount on the total amount due. The rationale behind this percentage is that it provides a manageable reduction in costs for the contractor while also ensuring the supplier receives their payment in a timely manner, which is crucial for their cash flow. A prompt payment discount benefits both parties: contractors save money, and suppliers enhance their liquidity. Such discounts are generally seen as a standard practice in the industry, making it a common expectation for contractors to take advantage of them. Other options might suggest higher or no discounts, which do not align with industry trends regarding prompt payment incentives.