Many of my clients, who have a GSA Schedule but are new to the government market, ask me about government invoicing and payment schedules – for obvious reasons. In the commercial market, a seller will identify their invoice schedule and the buyer will normally oblige. However in the government market, they don’t pay for something until they receive it. Specifically, 31 U.S.C. 3324 says: “(a) Except as provided in this section, a payment under a contract to provide a service or deliver an article for the United States Government may not be more than the value of the service already provided or the article already delivered.” Furthermore, the Prompt Payment Act at 31 U.S.C. 3903 says: “(1) (B) provide that the required payment date is 30 days after a proper invoice for the amount due is received if a specific payment date is not established by contract”.
So for all government contractors, after you understand that the government doesn’t pay for something until they receive it (there are a few exceptions) and their payment terms are Net 30 Days, you should also understand when you can invoice and when those 30 days start.
The government has “Inspection/Acceptance” terms. Within a reasonable period of time, the government reserves the right to inspect or test any supplies or services that have been sold, and upon satisfaction (they conform to the requirements of the contract) they will accept those items for payment. As a helpful hint, make sure you ask your government buyer for written confirmation of Inspection/Acceptance, so you can invoice accordingly and enforce payment terms. For contractors selling products, this should be somewhat easy. For contractors performing services, it could depend on a number of factors. Within a Firm Fixed Price (FFP) contract award, you’ll want to indentify your project milestones or service deliverables and match them up with an invoice schedule. If you don’t, the government could withhold payment until the contract (task order) is completed.
Remember, even though the government pays in arrears, you can ask for and receive payment as quickly as every month. And for many small businesses, managing cash flow and understanding government payment terms, can be absolutely critical to your success.
By the way, do you want to know one of the government’s rare pre-payment exceptions? 31 U.S.C. 3324 says: “(d) (2) (d) The head of an agency may pay in advance from appropriations available for the purpose — charges for a publication printed or recorded in any way for the auditory or visual use of the agency.” Basically, this exception allows for subscriptions (similar to a magazine or data subscription) to be paid up front. But even with this exception, advance payments are usually capped at 15% of the total contract price.