FinancialProcess

Do federal contracts pay upfront or in advance?

Quick Answer: Generally no. Federal contracts pay after delivery/performance through invoice submission. Limited advance payments are available in special circumstances. Progress payments provide interim financing for some contracts.

As of 2024FAR Part 32

Detailed Answer

Federal payment practices differ significantly from some commercial arrangements: **Standard payment process:** - Contractor performs work or delivers supplies - Contractor submits invoice for completed work - Government reviews and processes payment - Payment within 30 days (Prompt Payment Act) - Interest penalties for late government payments **Limited advance payment situations:** - Contract financing (FAR Part 32) - Requires specific circumstances and approval - Must be in government's best interest - Contractor must provide adequate security - Unusual, not routine **Progress payments (more common):** - Available for certain contracts - Based on costs incurred, not completion - Typically 80% of incurred costs (85% for small business) - Requires adequate accounting system - Government has lien on work-in-progress **Performance-based payments:** - Tied to objective milestones - Can provide cash flow similar to progress payments - Based on accomplishment, not costs - Must be negotiated into contract **Planning for federal payment timing:** - Build working capital requirements into business plan - Factor 45-60 day payment cycle into cash flow - Consider lines of credit for startup phase - SBA loans may help bridge timing gaps - Invoice promptly when work is complete **Commercial items exception:** - Commercial item contracts may have more flexible terms - Still generally pay after delivery - Faster payment under commercial terms

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Read Full Guide: Getting Started with Federal Contracting: Complete Beginner Guide