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An Introduction to the
Federal Prompt Pay Act

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By Michael C. Dennis, MBA, CBF

The Prompt Payment Final Rule

The Prompt Payment Final rule requires executive departments and federal government agencies to pay commercial obligations within certain time periods, and to automatically pay interest penalties when payments are late. This rule is subject to certain limitations, including:

  • The Prompt Payment rule requires vendors to submit EFT information and a TIN as part of a proper invoice, unless agency procedures provide otherwise. Late interest penalties do not apply if the vendor fails to supply EFT information and the TIN as part of a proper invoice, and failure to do so may delay payment.

  • The Treasury EFT rule requires that most Federal payments be made electronically, subject to certain limitations. The EFT rule does not provide waivers for vendor payments. As a result, agencies may withhold payments to vendors until or unless EFT information is submitted. If EFT information is not provided in the invoice, the payment period does not begin, nor are agencies required to pay late payment interest penalties, until a corrected invoice containing this information is received.

  • The payment period does not begin [the clock does not start on an invoice] until the date the invoice is received by the designated agency office. The Prompt Payment rule defines designated agency office as the office designated by the purchase order, agreement, or contract to first receive and review invoices. This office may be different from the office issuing the payment. The clock does not start until the supplier delivers a proper invoice to the proper agency office.

  • Vendors are not required to offer discounts to Federal agencies, and Federal agencies not required to accept discounts if offered by a vendor. The Prompt Payment rule allows agencies to take discounts if it is economically justified, and if acceptance of goods or services has occurred. If the discount is taken, payment is due in accordance with the discount terms, but if there is no invoice date on the invoice submitted by the vendor, the discount period will begin on the date a proper invoice is received by the agency.

It is clear that the Prompt Payment rule does not guarantee that federal agencies and entities will pay suppliers or contractors on time. Most payment problems involving sales to the federal government are caused by errors made by the supplier. Failure to understand the Prompt Payment rule requirements is one of many errors that are often made by suppliers that do not have experience and expertise in government shipping, billing and collection.

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