Many government contractors are emerging from the recent federal shutdown with stop work orders, reduced contract scopes, and unpaid invoices. With agencies reopening and invoice processing resuming, contractors are now facing a significant payment backlog from their invoices on or before September 30th.
If you are waiting for your invoices to be paid by the federal government, then you should be aware of the Prompt Payment Act. In this blog, we’ll explain what the Prompt Payment Act is, who it applies to, what steps you should be taking to keep your invoices organized.
The Prompt Payment Act requires federal agencies to pay contractors on time, encourages them to take discounts, and mandates automatic interest penalties when payments are late.
In other words, federal agencies must pay contractors within 30 days after receiving a proper invoice or after accepting goods or services, whichever is later. If they miss this deadline, they must pay interest. The Department of the Treasury publishes the applicable late payment interest rate, which is updated every 6 months. The Prompt Payment interest rate from July 1 through December 31, 2025 is 4.625%.
The due dates for making invoice payments (as defined above) are outlined in the Federal Acquisition Regulation (FAR) clause 52.232-25 Prompt Payment.
The Prompt Payment Act applies to all federal agencies and to prime contractors who work with these agencies, unless your specific contract has another payment clause that says otherwise. Subcontractors are indirectly affected as well. Although the Prompt Payment Act does not give subcontractors a direct legal claim against the government, many prime contracts include flow-down requirements requiring timely payment to subcontractors.
However, you need to be aware of how this act works if you are to collect interest payments. The Prompt Payment clause in the FAR specifies that the designated government payment office will pay an interest penalty automatically IF payment is not made by the due date AND the conditions listed in the FAR clause are met. This is the catch here, because if you are withholding your invoices or not submitting them properly against your contract’s terms and conditions, you may not be able to receive the interest (we’ll go into this more below).
The FAR states the conditions as follows:
It’s equally important to understand the limits of the law. For example, contract financing payments, such as advance payments or fast payment procedures, are explicitly excluded from Prompt Payment Act interest.
During a government shutdown, most agencies stop acceptance and processing of invoices. Contractors may still submit them, but the government cannot “receive” or “accept” them in an official capacity unless personnel are excepted or essential. This means the Prompt Payment Act clock for your invoice during the shutdown may not have started ticking. However, invoices submitted before the shutdown are already considered late, and when funding returns, agencies must resume processing — and backlogs quickly accumulate.
Federal news outlets have recently emphasized that many invoices submitted before the shutdown or during limited operations will immediately exceed the 30-day payment window once officially accepted, and contractors collectively may see millions in owed interest due to accumulated delays.
Agencies will be moving quickly to clear backlogs, but the burden is on contractors to ensure their invoices are in line and properly documented. We’ll discuss how you can do this next.
Coming out of a shutdown, documentation is everything. You should maintain a detailed log of your expenses and costs associated with your contracts during the shutdown. You should also include:
This documentation could become important if you need to assert late payment interest or support a claim related to government-caused delay.
Another important thing to remember is not to hold your invoices. Some contractors believe waiting to submit invoices helps avoid complications during a shutdown or backlog. In reality, this could be excusing the government from having to pay any interest.
The FAR is explicit about the requirements for a “proper invoice,” including contract number, descriptions, quantities, prices, payment terms, and banking information. A deficient invoice does not start the payment countdown. The best thing to do here is to submit your invoice and let the government take over from there.
The shutdown paired with the Trump Administration’s new policies means a lot of change and maybe some questions left unanswered for contractors—especially if you’re new to the world of government contracting. If you have any questions about your GSA Schedule, need help managing your contract, or are looking to sell to the government, we’re here to help!