Overview
FAR 32.906 prescribes the procedures and timing constraints for Government payment offices when processing contractor invoices. It establishes the standard for when payments should be released, how to handle partial deliveries, and the methodology for applying prompt payment discounts.
Key Rules
- Early Payment Limitation: The Government generally cannot make payments earlier than seven days before the contractually specified due date, unless an agency head authorizes accelerated payments or a case-by-case exception.
- Payment Timing and Holidays: Checks must be mailed the same day they are dated, and EFTs must be settled by the due date. If a due date falls on a weekend or legal holiday, payment may be made on the next working day without incurring interest penalties.
- Erroneous Rejections: If a billing office incorrectly rejects a proper invoice, the original receipt date must be used for interest penalty calculations once the invoice is resubmitted.
- Partial Deliveries: Unless the contract specifically prohibits it, contractors are entitled to payment for partial deliveries of supplies or services that meet contract requirements and have calculable prices.
- Discount Windows: To maximize financial efficiency, the Government aims to pay as close to the end of a discount period as possible. If a discount deadline falls on a weekend or holiday, the Government may still take the discount if payment is made the next business day.
- Remittance Identification: Every payment or remittance advice must include the contractor's specific invoice number to facilitate reconciliation.
Practical Implications
- Cash Flow Management: Contractors can significantly improve their cash flow by negotiating Statements of Work (SOWs) that allow for billing upon the completion of discrete, partial milestones rather than waiting for total contract completion.
- Administrative Accuracy: Because the Government is required to use contractor-generated invoice numbers on remittance advice, contractors should maintain a rigorous internal tracking system to ensure payments are correctly applied to the corresponding accounts receivable.
- Interest Protections: Contractors are protected against Government administrative errors; if an invoice is wrongly rejected, the Government cannot "reset the clock" to avoid paying interest penalties on late payments.