Given the title, I probably have everyone’s attention right now. Late payments are a bane of any contractor – the killer of cash flow and worse. Many laugh at the thought of the government paying anyone on time, but I promise you, there are laws set in place so that Uncle Sam can’t delay or rip your business off.
In response to a study conducted by the General Accounting Office in 1978 showing that the government paid at least 30% of their contractors well after the due dates, the government created the Prompt Payment Act. Passed in 1982, the Prompt Payment Act is a piece of legislation intended to force the government to pay contractors and vendors in a timely fashion, including interest fees if payment is not made within 30 days of the due date. The Act also states that the government can only take discounts if payments are made within the discount dates set in a contract.
One of the major benefits of this act is that it states specifically both how much the vendor can charge in interest fees and at what point they start to accrue when Uncle Sam doesn’t pay on time. In addition, the act encourages federal agencies to take full advantage of the prompt payment discounts, which contractors often offer to agencies making early payments. These discounts ultimately save the government money in both late fees and original cost, making this act valuable to both the taxpayer and the small business owner.
In 1993, President Clinton emphasized the importance of electronic commerce in government payments. His original intent was to make the government pay strictly electronically to help save tax dollars on late fees and increase efficiency. President Clinton’s thoughts spurred an addition to the act called the Debt Collection Improvement Act of 1996, which promoted the use of government credit cards and made the payment process much faster.
Why is this act important? One of the big frustrations for contractors of any time is not being paid on time. You can’t go to the grocery store, have the clerk ring everything up, and then hand them an IOU and neglect to pay it for a couple months. Well that’s the main purpose of the Prompt Payment Act – to protect the vendors from being abused by Uncle Sam and to be paid on time. To take advantage of this there are three criteria that contractors must meet:
1. Valid contract exists listing the supplies or services
2. The government agency accepts completion of the contract without dispute to quality, quantity, or other contractual provisions
3. The designated government billing office receives a proper invoice.
Is there is any dispute, no late penalties will be accepted by the government. It is critical that contractors file all the correct documents to the right places in order to be paid in a timely manner. It is true that the payment and invoicing systems can be incredibly complex, so it is very important that you pay careful attention when doing this. When working with the government, there is no room for documental error, which is why Gateway to Government wants to help your small business. We know where every “i” needs to be dotted and “t” needs to be crossed. Our contracting experts have worked with these systems and know the regulations like the back of their hand, meaning that they can ensure that the Prompt Payment Act works in your favor.