(x) Any other information or documenta- tion required by the contract (e.g., evi- dence of shipment). If an invoice lacked any of this in- formation, we could deem it improper and would not be able to make pay- ment against it. So, an office could hold a defective invoice and not act, delaying payment. The 1988 amend- ment to the Act specified that it was the government’s responsibility to return any defective invoices to the vendor within seven days after their receipt, explaining any deficiency. If it were not returned within that time, that additional time would be included in calculating interest due. (For example, if we took 15 days to return a deficient invoice, we would only have 22 days to pay the proper invoice once received, having used eight of the 30 days due to our delay in returning the invoice.) Payment Once we have received a proper invoice and/or accepted the supplies or services, we must make payment within 30 days as discussed above. Per the PPA, within the 30-day win- dow, a check must be issued or an electronic funds transfer made by the payment due date. The date the payment is issued is considered the payment date, not the contractor’s actual receipt of payment. It is also interesting that govern- ment cash management and the PPA discourage early payment. In fact, the goal is to pay no earlier than seven days before payment is due, but no later than the payment due date, or
invoice upon receipt. And in those cases, the clock did not start when it should have. In 1988, Congress closed this loophole as well. This change stated that if we did not properly an- notate the date of receipt of the in- voice, the 30-day period would begin on the actual date of the invoice itself. This essentially cost the government up to a week of time to make pay- ments (postal mail days). Another potential problem was “improper invoices.” The PPA clause includes a list of the following items that must be included in a proper in- voice: (i) Name and address of the Contractor. (ii) Invoice date and invoice number. (The Contractor should date invoices as close as possible to the date of the mail- ing or transmission.) (iii) Contract number or other authori- zation for supplies delivered or services performed (including order number and line-item number). (iv) Description, quantity, unit of mea- sure, unit price, and extended price of supplies delivered or services performed. (v) Shipping and payment terms (e.g., shipment number and date of shipment, discount for prompt payment terms). (vi) Name and address of Contractor official to whom payment is to be sent (must be the same as that in the contract or in a proper notice of assignment). (vii) Name (where practicable), title, phone number, and mailing address of person to notify in the event of a defective invoice. (viii) Taxpayer Identification Number (TIN) … if required elsewhere in this contract. (ix) Electronic funds transfer (EFT) banking information.
within a window of 23 to 30 days after acceptance/receipt of invoice. This was included in the 1998 amendment. This is similar to how individuals manage their own money. They usu- ally do not pay their bills early (to earn interest on the money or manage pri- vate cash flow). There are exceptions to this cash management policy, es- pecially for small businesses as pro- vided in the Defense Federal Acquisi- tion Regulation Supplement (DFARS) 232.903, where we are given a man- date to pay them as quickly as pos- sible, with a goal of 15 days. And DoD policy encourages prime contractors to make accelerated payment to small business subcontractors within 15 days from government payment to the prime. Sometimes vendors offer prompt payment discounts (e.g., 2 percent, 20 days). These may be offered on the contract or on individual invoices. The paying office must calculate whether it is in the government’s in- terest to pay within 20 days to save 2 percent. If so, we will pay within 20 days, counting from the date of the invoice. But if we improperly take the discount but do not pay on time per the discount terms, then we may owe interest. Late Payments When we do not make payments by the due date, the Act provides that interest is automatically owed. We must pay the company monthly com- pounded interest at a rate established by the Treasury Department every six months, which was 4.625 percent as of January 2025. The interest rate used is based on the date when interest begins to accrue, i.e., when payment is due. If we do not pay interest due, we must also pay an additional penalty if the interest penalty is more than $1, if it is not paid within 10 days after pay- ment of the invoice, and if payment of the penalty interest is requested in writing by the vendor with the request postmarked within 40 days after the invoice is paid. The Treasury
Other Resources • Contracting eBusiness, Office of the Assistant Secretary of Defense • “Handshake” Procedures on Procure to Pay • Bureau of the Fiscal Service, Prompt Payment
16 | DEFENSE ACQUISITION | July-August 2025
Made with FlippingBook - Online Brochure Maker