Collecting from the Federal Government

Government receivables, without question, can be some of the most difficult invoices to collect. With the exception of the government shutdown during the 104th congressional budget debate, the government is however, a risk-free Customer. So, why do we have aging receivable issues for our government customers?

There are some fundamentals of dealing with the United States Government, which include: gaining an understanding of the laws and regulations governing payment practices, comprehending their interpretations and definitions, and knowing the contract requirements. These are a vendor’s best weapons in the crusade for cash from the government. For those in the government cash collections business, it often feels like a loosing battle, however gaining insight into these regulations and exercising your authority can be an empowering experience. This TRM piece suggests some of the essentials of enhancing your collection from the government.

Principles of Collecting from the Government

As with most customer related business processes, if things go wrong with the sales, service, product or delivery, they eventually haunt accounts receivable; however, all problems have their sources.

Most problems can be traced to the very beginning, the signing of the contract. So many times contracts are accepted with terms and conditions that have inherent automatic payment delays. To avoid these problems, here are a few recommendations:

  • read your contract
  • understand your contract
  • ask questions
  • follow the directions
  • know who is responsible for actions needed
  • apply the rules to your situation
  • promptly follow-up on problems
  • know what is covered (what does the law say)

Some problems like a wrong address are very simple to correct. The following example of an invoice address might look OK;

    Department of Defense
    Pentagon Blvd.
    Washington, D.C. 20050

however, without the following information:

  • a person’s name
  • office symbol
  • department code
  • room number
  • purchase order number or
  • identifying characters to ensure the invoice is routed properly, it is guaranteed this invoice will not be paid.

The wrong address delays receipt of the invoice, which delays payment. Read your contract carefully for the correct mailing address. On a DD1155, this address is typically found in Block 13. Entitled, “mail invoice to” address. Most contracts for the Department of Defense (DOD) will indicate the payment office on their order for supplies or services, yet want the invoices mailed to another location. If invoices are not mailed in accordance with the contract, not only will the invoice not be paid; but, as a vendor, you cannot file a claim for interest under the Prompt Payment Act (PPA).

The Prompt Payment Act (PPA)

The Prompt Payment Act was enacted to ensure the federal government makes timely payments. Bills are to be paid within 30 days after receipt and acceptance of material and/or services – or – after receipt of a proper invoice whichever is later. When payments are not made timely, interest should be automatically paid.

The basic requirements of the PPA for government finance offices are to:

  • date stamp all incoming invoices.
  • make payments no earlier than 23 days and no later than 30 days from the invoice date.
  • take discounts only within the terms offered.
  • pay interest automatically when payment is late.
  • report performance based on statistical sampling to the Office of Management and Budget.

What is not covered under the PPA?

  • cost plus contracts
  • cost reimbursable contracts
  • progress payments
  • advanced payments

Prompt Payment Act Payment Terms:

  • 30-day payment for most items except…
  • 7 day payment terms for meat and poultry
  • 10 day terms for dairy products, edible fats and perishables
  • 14 day terms for construction contracts
  • 15 days for “fast pay” terms

The Prompt Payment Act provides a seven day constructive acceptance* to start the payment clock. When a contract has destination acceptance terms, the invoice or receiving report should be accepted within seven days of receipt of the goods or services. The PPA allows seven days for returning a defective invoice without reducing the processing time. It also ties the cash discount terms to the date of the invoice. Partial payments for partial deliveries are also mandated in the Prompt Payment Act. Other highlights of the PPA include automatic payment of interest when late and additional interest guidelines. An additional interest penalty is due if the basic interest is not paid and then you make a written demand for interest due. This process is also referred to as filing a claim.

Interest Collection under the Prompt Payment Act

When can interest be claimed?

If a good and proper invoice was submitted in accordance with the terms and conditions of the contract and if that invoice was not paid within 30 days of receipt of the invoice or acceptance of the goods or services (whichever is later), then a claim for interest can be filed. The claim’s process can be manually intensive, frustrating to initiate and the follow-up can become time consuming. However, filing claims for those activities with consistent delays in payments has its benefits: a decrease in days sales outstanding (DSO); increase in cash; and, increase in responsiveness from those activities for problem resolution. The key in filing claims is understanding the contract process and identifying the root cause of payment delays.

Two key questions to ask:

  1. Is the root cause an internal business practice that is creating the improper invoicing?
  2. Is there an activity that requires invoices to be resubmitted numerous times in order to get paid?

What is meant by a “good and proper” invoice?

As defined by the government, the eight basic ingredients are as follows:

  1. Name of the Contractor
  2. Invoice Number and Date
  3. Contract number or Purchase Order Number (PO) and Delivery Order Number (DO) or Task Order (TO- if applicable)
  4. Description, Unit Prices and Extended (exactly as written on the purchase order)
  5. Quantities, Shipping Terms and Payment Terms (followed as written on the PO and clearly stated on the invoice)
  6. Line Items on the Invoice Which Agree with Line Items on the Procurement Document
  7. Complete Remittance Address
  8. Other information as required in the contract, i.e., Statement of Work (SOW), Standard of Performance (SOP), or Contract Data Requirements (CDRLs).

Be aware that submitting a proper invoice is the vendor’s responsibility.

The DD250

Many of the Department of Defense (DoD) contracts require the use of the DD250 or Material Inspection and Receiving Report as evidence of shipment.


When a DD250 is required, use it as the invoice to help speed up the payment process. Stamping in red letters, “Original Invoice” and subsequent copies, “Invoice Copy” will suffice.

The proper completion and submission of a DD250 are critical to prompt payment and the claims process. The DD250 should be a mirror image of the DD1155 or Order for Materials or Supplies. The preparation of the DD250 is explained in more detail in the Defense Federal Acquisition Regulation Supplement. On-line access to the form and instructions are at particular contract will provide the specific instructions for distribution of the DD250, typically found in Section E of your contract entitled, “Inspection & Acceptance.”

Filing a Claim

How is the payment date determined and when can you file a claim? The due date of the invoice seems to be a constant source of frustration between vendors and the federal government. In the commercial world, we like and expect payment within thirty days of the invoice date. In the federal government world, payment can be made 30 days after receipt. The invoice will be deemed received on the later of:

  • Date an invoice is actually received – or –
  • 7th day after a product is delivered or service completed (this is called constructive acceptance – unless,
  • a longer acceptance period is authorized in the contract (SOP – Standard of Performance Clause)

Again, the burden of proof is your responsibility. Please note that actual acceptance can occur at any point in time after constructive acceptance. The actual certification date should not affect the payment clock. The government has a total of 30 days from the receipt of the invoice to process payment to the vendor. Unfortunately, that’s why invoices are returned on day number 29 from some government activities indicating the reasons why it can’t be paid. The law states improper invoices should be returned within seven days. Therefore, the payment clock begins again at day eight even if the invoice was not returned until day 29. Good news, for small and disadvantages businesses, the federal government can exercise an option to accelerate payment times for your invoices.

How Is the Late Payment Interest Calculated?

When should you expect to be paid or file a claim if you are not paid interest when due? The basic guideline under the Prompt Payment Act (PPA) states the government is required to pay interest automatically if paid late. Interest payments are typically made separately from the principal payment. The PPA interest guidelines are as follows:

  • 10 day window after principal payment to pay interest,
  • Interest payment must state the number of days paid and the rate.
  • Rate used is based on the day late not the day paid.
  • Interest accrues for one year and is compounded monthly.
  • No interest is paid less than $1.00
  • No interest on contract disputes.

There are additional penalties if the interest is not paid as specified: $25 minimum additional penalty and a $5,000 limit on the size of the additional penalty. In other words, double interest is due if your interest is not paid automatically. It is important to remember: you only have a 30-day window to submit vendor claims for the additional penalty, starting 10 days after principal payment. To file a claim, the vendor must make a written demand stating the principle was paid with no interest. Vendors must also give the invoice information and certify all the facts in the claim.

Where Do You Go for Problem Resolution?

Your Administrative Contracting Officer (ACO) is your first step in the problem resolution. On many government contracts the ACO and Procurement Contracting Officer (PCO) and Contracting Officer (CO) are the same activity. This contact information is found in Block 6. For the CO and Block 7. For the ACO on your DD1155 or PO. The ACO has numerous responsibilities under contracting such as:

  • Conducts a post award conference
  • Prepare contract modifications
  • Electronic Funds Transfer (EFT)
  • remittance address changes
  • administrative corrections
  • Progress payments administration
  • Process specific invoice/vouchers
  • Provides assistance in payment problems
  • returned invoices
  • delayed payments

The Effect of Technology on Government Collection

Many of today’s electronic commerce technologies underway will alleviate government payment delays. These include EFT, IMPAC and EDI. With mandatory EFT by January 1, 1999, the government will eliminate lost checks and vendors will receive their payments 5-10 days faster than today. Mandatory IMPAC (government credit card program) for all purchases less than $2,500 will eliminate hours of collection time on smaller dollar invoices. Under the current VISA card program, vendors are paid usually within 2-3 days of shipment of the order. The merchant bank then collects from the government. Electronic Data Interchange (EDI) is simply the electronic version of order process as we know it today. The government purchase order is e-mailed to the vendor, input into their order processing system and then invoiced electronically to the payment office. When information is not re-keyed into systems, the chances for errors in the order and billing processes are reduced if not eliminated.

In conclusion, read and understand your contract. Know who does what under your contract. Apply the rules to your situation. Follow the directions as specified in your contract. Follow-up promptly on problems.

Want to know more? Are you having payment delays with a particular agency? Need assistance with a form? Would you like to have more hands-on experience in the process of government collections? Contact the Government Receivables Department of NACM at 410-740-5560, visit them at the Government Receivables website or

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