When the government pays: the Prompt Payment Act in plain English

Federal work is steady and the customer does not go out of business. It pays, though, on its own clock, and that clock is set by the Prompt Payment Act and the rules written under it. If you understand the clock, you can plan payroll around it and know exactly when you are owed interest. If you do not, you will spend a lot of time wondering where your money is.

This guide explains the basics in plain terms. It is general information. Your contract and the current regulations control.

The basic rule

For most federal contracts, the agency must pay a proper invoice within 30 days of receiving it, unless the contract sets a different payment date. If the agency pays late, it generally owes you interest automatically, without you having to ask, at a rate the Treasury publishes twice a year.

Two words in that rule do all the work: proper and receiving.

What makes an invoice proper

A proper invoice contains everything the contract and the regulations require. The standard payment clause lists the items, and your contract may add more. Typically that means:

• Your business name, address and the name and contact details of a person to notify if the invoice is defective
• The invoice date and a unique invoice number
• The contract number or other authorization, and the contract line items being billed
• A description, quantity, unit of measure, unit price and extended price for what was delivered or performed
• Shipping and payment terms, where applicable
• Your taxpayer identification number and your electronic funds transfer banking information, unless they are already on file as the contract allows
• Any other documentation the contract requires with the invoice, such as a receiving report or a signed acceptance

Most agencies require invoices through a designated electronic system. Civilian agencies commonly use the Treasury's Invoice Processing Platform; Defense contracts generally use the Wide Area Workflow module in the Procurement Integrated Enterprise Environment. Submitting through the wrong channel, or to the wrong office, means the invoice has not been received.

When the clock starts, and when it restarts

The 30 days run from the later of two events: the agency's designated billing office receiving a proper invoice, or the government accepting the goods or services. Acceptance can be constructive: if the agency does not inspect and reject within a set period after delivery, typically seven days unless the contract says otherwise, acceptance is treated as having occurred.

If your invoice is defective, the agency is supposed to return it within seven days and say what is wrong. When you fix it and resubmit, the clock starts over from the new receipt date. An invoice bounced for a missing field in week one can push payment out by weeks, so getting it right the first time is worth more than any follow-up call.

Construction contracts run on shorter timelines

Construction contracts have their own payment clause with tighter timing. Progress payments are generally due within 14 days of receiving a proper payment request, and the agency can return a defective request within seven days. Final payment follows the usual 30-day rule after acceptance and a proper final invoice. The clause also requires you to pay your subcontractors within seven days of receiving payment for their work, and to pay them interest if you are late.

Interest, and the rate

If the agency pays after the due date, it owes interest from the day after the due date until payment, at the Treasury's prompt payment interest rate for that period. The rate is set every January and July and published in the Federal Register and on the Treasury's Bureau of the Fiscal Service site. Interest is supposed to be paid automatically with the late payment; if it is not, you can request it, and there are additional penalties for agencies that fail to pay interest they owe after a proper request.

Faster payment for small businesses

Federal policy directs agencies to pay small business prime contractors as quickly as possible, with a goal of 15 days after receiving a proper invoice, to the fullest extent permitted by law. Primes that receive accelerated payments are, in turn, directed to accelerate payments to their small business subcontractors. This is a goal, not a legal deadline with interest attached, so plan your cash on the 30-day standard and treat anything faster as a bonus.

Cash habits for government contractors

1. Build an invoice checklist from your contract's payment clause, and run every invoice against it before submission.
2. Submit through the required system, to the designated office, and record the date and confirmation.
3. Track the receipt date and compute the due date for every invoice. Keep a simple sheet: invoice, received, due, paid, interest owed.
4. Follow up on day 31, not day 60, with the contracting officer's representative or the payment office, and cite the receipt date.
5. Plan payroll for the full cycle. At minimum, carry payroll and materials across 30 days from invoice to payment, plus the days from the work to the invoice. As a subcontractor, add the time your prime takes after it is paid.
6. Watch the fiscal calendar. A lapse in appropriations can stop payments for the duration; invoices already in the system are generally paid when the agency reopens, but the gap is yours to carry in the meantime.

The Float is general information, not legal or financial advice. The Prompt Payment Act, its regulations and the standard payment clauses are the authority; read your contract's payment clause and confirm current requirements with your contracting officer or counsel.