Winning a federal contract is only half the business equation. The other half is getting paid. The government is generally a reliable payer, but payment depends on following the contract’s invoicing instructions exactly. A small error can send an invoice back and delay cash for weeks, which can be hard on a small firm’s finances.
The Prompt Payment Act
The Prompt Payment Act, enacted in 1982, requires federal agencies to pay proper invoices on time and to pay interest penalties when they pay late. In general, payment is due 30 days after the designated billing office receives a proper invoice, or after the government accepts the goods or services, whichever is later, unless the contract specifies a different date. Some types of contracts and payments have different timelines.
The key phrase is “proper invoice.” An invoice that is missing required information or is submitted to the wrong place may not start the payment clock. Agencies generally must notify the contractor of defects within a limited period, but the delay still affects your cash flow.
What makes an invoice proper
The contract’s payment clauses and invoicing instructions define what a proper invoice must contain. Common elements include:
- Your name, address and invoice date
- The contract number, order number and line item numbers
- A description, quantity, unit price and extended total of the goods or services
- The period of performance covered
- Payment and shipping terms, where relevant
- Your Taxpayer Identification Number and banking information as required
- The name and contact information of the person to notify about defects
Invoices should match the contract’s line items and prices. If you are billing for something not in the contract, a modification may be needed first.
Electronic invoicing systems
Most federal invoices are now submitted electronically, and the contract will tell you which system to use. The Department of Defense commonly uses Wide Area Workflow, part of the Procurement Integrated Enterprise Environment (PIEE). Many civilian agencies use the Treasury Department’s Invoice Processing Platform. Some agencies use their own systems.
Set up your system accounts before your first invoice is due, and make sure more than one person in your company knows how to submit and track invoices.
Avoiding common delays
- Read the payment and invoicing clauses at contract start, and create a template that follows them.
- Keep your SAM.gov registration active and your banking information current.
- Confirm who must approve or accept the work, and coordinate with them.
- Track each invoice’s status and follow up promptly on rejections.
- Keep supporting documentation, such as timesheets and receipts, organized for review.
Planning for cash flow
Even with prompt payment, federal contracts can create cash gaps, especially at contract start, when you may hire staff and incur costs before your first payment arrives. Plan for those gaps with a realistic cash flow forecast, and talk to your banker or financial advisor about options such as a line of credit before you need it. Steady, correct invoicing is one of the simplest ways to keep a federal business healthy.