How Do Government Contractors Get Paid?

Getting paid on a government contract is a chain of handoffs, and every link adds time. The order is almost always the same:

• Perform and deliver. You complete the work, or the deliverable for the billing period, under the contract.
• Submit a proper invoice. Electronically, through the system your contract names, referencing the contract number and line items (CLINs).
• Inspection and acceptance. A government representative confirms the work was received and meets the contract. On DoD contracts this is the receiving report.
• Approval. The contracting or finance office matches the invoice to the contract and the acceptance and approves it for payment.
• Disbursement. The paying office releases the funds by electronic funds transfer to the bank account on your SAM.gov registration (FAR 52.232-33).

The Prompt Payment Act (31 U.S.C. Chapter 39, implemented at 5 CFR Part 1315 and FAR Subpart 32.9) sets the clock. For most contracts the payment due date is 30 days after the designated billing office receives a proper invoice, or 30 days after government acceptance if that comes later (FAR 52.232-25).

Construction is different: progress payments are due 14 days after a proper payment request, and the final payment is due 30 days after acceptance (FAR 52.232-27).

If the agency pays late, it owes you interest automatically, at a rate the Treasury sets every six months. The catch is the word "proper." The clock does not start until the invoice is accepted as complete and correct, and a rejected invoice resets it. That is why a contract that says Net 30 routinely takes 45, 60 or 90 days from the work to the cash, especially on large task orders and multi-level approvals.

Usually not. The government pays in arrears: after you perform, invoice and the work is accepted. You fund payroll, subcontractors and materials first and get reimbursed later.

The FAR does allow some contract financing, but it is the exception, it has to be written into the contract, and it is not the same as getting paid upfront:

• Progress payments based on costs (FAR Subpart 32.5) reimburse a share of costs as you incur them. The customary rate is 80% of costs, or 90% for small businesses (FAR 32.501-1).
• Performance-based payments (FAR Subpart 32.10) pay on measurable milestones before final delivery, mainly on fixed-price contracts.
• Advance payments (FAR Subpart 32.4) are the least-preferred form of financing. They require special findings, and few contractors ever receive one.

Defense contracts invoice through the Invoicing module of PIEE, the Procurement Integrated Enterprise Environment, formerly Wide Area WorkFlow (WAWF), as required by DFARS 252.232-7006. Most civilian agencies use the Treasury's Invoice Processing Platform (IPP), following OMB Memorandum M-15-19 on electronic invoicing. A few agencies still run their own portals, so the payment clause in your contract is the final word.

Getting the system and the document type right is the single biggest lever you control. See the WAWF payment guide for the DoD workflow and what makes an invoice DCAA-compliant for the details auditors and approvers look for.

FAR 32.009-1 directs agencies to accelerate payments to small business contractors, with a goal of paying within 15 days of a proper invoice, to the extent permitted by law. Primes that receive accelerated payments must, under FAR 52.232-40, pass the speed along to their small business subcontractors as far as practicable.

That goal is helpful but not guaranteed. An accelerated payment still waits on inspection, acceptance and a clean invoice.

Every rejection restarts the Prompt Payment clock, so it pays to know the usual reasons:

• The wrong CLIN, or quantities and prices that don't match the contract or modification.
• A missing or unmatched receiving report or acceptance.
• The wrong invoice type, or the wrong system for the contract.
• Missing required data, such as the contract or order number, the period of performance or the remit-to details.
• Banking or entity information that doesn't match the SAM.gov registration.

Clean invoicing shortens the cycle, but it cannot remove the gap between earning the money and receiving it. That gap is structural, and it is exactly what invoice factoring addresses.

With government invoice factoring, you assign an approved receivable to a funding partner under the Assignment of Claims Act and receive most of its value now. Encore advances 80 to 90% of invoice value. Most clients onboard in two to three weeks, and once your account is active, each invoice is funded the same or next day. The agency pays on its schedule, and you run payroll on yours.

If you need to fund unpaid government invoices that are already aging, the same structure applies. See government contractor financing for how Encore sets it up.