Cash Flow and the Reemergence of Prompt Payment Penalties
The recent federal government shutdown has revived an issue that many federal contractors had almost relegated to history: prompt payment interest penalties. For more than a decade, electronic invoicing platforms and more disciplined financial operations have significantly reduced late payments across civilian and defense agencies. The current shutdown has abruptly reversed that progress, exposing how fragile contractor cash flow can be when the federal payment machinery stops and how central the Prompt Payment Act remains to the contractor’s risk landscape. (FedNews Network)
Jason Miller’s reporting focuses on a veteran-owned HUBZone IT reseller with approximately $20 million in unpaid invoices, much of it tied to purchases made at fiscal year-end on September 30. With payment offices furloughed, no one is in place to approve invoices routed through Treasury’s Invoice Processing Platform or other portals, and the company is increasingly dependent on its line of credit to bridge payments owed to its own vendors. Banks, which may not fully understand the government resale model or the shutdown context, react primarily to aged receivables and high line-usage, placing further pressure on the contractor’s capital structure. (FedNews Network)
Under the Prompt Payment Act, agencies must pay interest on invoices that remain unpaid more than 30 days after “acceptance.” For calendar year 2025, the Treasury interest rate is 4.625 percent, which, in the example highlighted in the article, equates to roughly $74,000 in interest on $20 million of outstanding invoices as of November 10. For agencies, these interest obligations create an unplanned drain on appropriated funds; as former OMB and Treasury official Tim Soltis notes, financial managers will likely need to reduce hiring or overtime, or cut other programmatic spending, to make room for interest payments that were not explicitly budgeted. (FedNews Network)
For federal contractors, the significance of this moment lies less in the dollar amount of any specific interest payment and more in the structural questions it raises. First, the article underscores that many financial offices have not regularly calculated or paid Prompt Payment Act interest in years, meaning contractors should expect variability and some confusion when agencies return to full operations. Knowing the statutory framework, understanding how Treasury publishes applicable interest rates, and being prepared to verify the government’s calculations will be critical for preserving value that might otherwise be overlooked or underpaid. (FedNews Network)
Second, the shutdown highlights the legal and practical ambiguity around when the 30-day clock starts. Procurement attorney Eric Crusius points out that many contracts assume a seven-day invoice acceptance period; if the government does not act within that window, “constructive receipt” may be deemed to occur, triggering the payment deadline even if offices are closed. Agencies, however, may argue that no one was available to receive goods or review invoices during the shutdown, and therefore the clock should only begin once normal operations resume. For contractors, this dispute over acceptance is not a theoretical exercise: it directly affects whether interest is owed and how much. (FedNews Network)
The article also warns against the instinct to hold invoices during a shutdown. Delaying submission may feel conservative, but it eliminates the possibility of claiming interest because there is no documented submission date from which to measure government delay. Instead, contractors are better served by submitting invoices in accordance with contract terms, retaining proof of submission, and later asserting interest claims once agencies are able to review and process the backlog. This strategy shifts the narrative from “we waited to bill” to “we billed timely and the government delayed payment,” which is precisely the scenario the Prompt Payment Act was designed to address. (FedNews Network)
Finally, the article reinforces a broader lesson in federal contract management: meticulous documentation is an existential necessity during periods of disruption. Contractors need contemporaneous records of invoice dates, communications with contracting officers and payment offices, delivery and acceptance milestones, and any ongoing costs incurred despite stop-work orders, scope reductions, or terminations for convenience. These records support not only prompt payment interest claims but also broader requests for equitable adjustment or certified claims that may follow once agencies triage their obligations after the shutdown. (FedNews Network)
Disclaimer: This blog post is for informational purposes only, is based on publicly available sources at the time of writing, and does not constitute legal, financial, or professional advice. Contractors should consult qualified counsel or advisors regarding their specific circumstances.