Jul 13, 2012

Edward Stucky

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Invoice Prompt Pay is No Bargain

With sequestration and award delays putting pressure on government contractors, many are asking the Federal Government to pay  faster than the thirty days required under the Prompt Payment Act.

In some cases, requesting expedited pay under a government contract may not be worth the cost. 

Because of today’s challenging economic environment, the Federal Government is more willing to consider speeding up payments.  However, the Government often requires that the contractor discount their invoice by 1-2%. 

If the invoice is paid within 10 days, this equates to an effective annual interest rate of 36-72%.  Not quite payday lending rates, but not that far off.  And 300-600% higher than Virginia’s maximum allowable loan rate.  In addition to the cost, the Government has been known to fail to make the payment in a timely fashion, thus putting a liquidity squeeze on the contractor.

Today, more than ever, it is imperative that contractors work closely with their bank and finance company to truly understand the full impact of their working capital needs.