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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