The Prompt Payment Act requires the federal government to pay its bills within 30 days, and it sets rules for how private companies must pay each other
The Prompt Payment Act is a federal law that does two things: it tells federal agencies they must pay their contractors and vendors within 30 days of receiving an invoice, and it requires private companies to pass that payment along quickly when they are part of a chain of subcontractors. If you work as a freelancer, run a small business, or supply goods to larger companies that work with the government, this law affects how fast you get paid.
The law exists because government agencies and large contractors used to hold onto invoices for months, leaving small businesses waiting for money they had already earned. The Prompt Payment Act creates a legal obligation to move that money down the line quickly, and it adds interest penalties if payments are late.
Key Takeaways
- Federal agencies must pay invoices within 30 days, or they owe you interest on the unpaid amount at a rate set by the Treasury Department.
- Private contractors who receive government money must pass payments to their subcontractors and suppliers within seven days of receiving payment themselves.
- The law covers invoices for goods, services, and construction work done for federal contracts.
- You do not have to file a claim or take action to receive the interest penalty — it accrues automatically if payment is late.
How the 30-day clock works for federal payments
When you submit an invoice to a federal agency, the 30-day period starts the day the agency receives your invoice — not the day you send it. This is why sending invoices by email or through a government portal that creates a time-stamped record matters: you need proof of when they received it.
The agency must pay you by the 30th day. If they pay on day 31 or later, they owe you interest. The interest rate changes quarterly and is set by the U.S. Treasury Department; it is usually between 1 and 2 percent per year, but it compounds daily on the unpaid balance. The longer the payment is overdue, the more interest accumulates.
Some invoices have a different clock. If your contract specifies a different payment important date — for example, 45 days — that important date applies instead of 30 days. Always check your contract to see what you agreed to.
The seven-day rule for subcontractors and suppliers
If you are a subcontractor or supplier working for a private company that has a federal contract, the Prompt Payment Act requires that company to pay you within seven days of the day they receive payment from the federal government. This is a much tighter timeline than the 30 days the government gets.
The purpose is to prevent large contractors from using federal money as a loan. A contractor might receive $100,000 from the government on day 30, but they cannot hold onto your $10,000 share for weeks while they use the money elsewhere. They must pass it to you by day 7.
If they miss the seven-day important date, they also owe you interest — at the same Treasury rate, compounded daily. The interest clock starts on day 8.
What invoices are covered and what are not
The Prompt Payment Act covers invoices for work done under a federal contract. This includes construction, supplies, services, and repairs. It applies whether you are invoicing a federal agency directly or a private company that is using federal money to pay you.
The law does not cover invoices for work done for state or local governments, or for private companies that have no federal contract involved. It also does not cover invoices that are disputed — if the agency or contractor says your invoice is wrong or incomplete, the clock may pause while they investigate.
If your invoice is missing information the contract requires — such as a purchase order number or a specific format — the agency or contractor may reject it as incomplete. Once you resubmit a corrected invoice, a new 30-day or seven-day clock starts.
How to track whether you are owed interest
You do not have to file a separate claim to receive interest on a late payment. The interest accrues automatically. However, you do need to know when the important date passed so you can verify that the payment you received includes the interest owed.
Keep a record of the date you submitted your invoice and the date you received payment. If the gap is longer than 30 days (for federal agencies) or seven days (for contractors), calculate the number of days late. The Treasury Department publishes the interest rate for each quarter on its website; you can use that rate to estimate what you are owed.
If the payment you received does not include the interest, contact the agency or contractor in writing and ask them to pay it. Include your invoice date, payment date, the number of days late, and the interest rate that applied. Keep a copy of your request.
What happens if you are not paid on time
If a federal agency or contractor does not pay you by the important date, you have the right to demand the unpaid amount plus interest. You can also stop work on the contract if the payment is significantly overdue, though you should check your contract terms first and consider whether stopping work might breach your own obligations.
If the dispute cannot be resolved between you and the agency or contractor, you can file a claim with the agency's contracting officer or pursue a legal remedy. For federal contracts, there is also a disputes process outlined in the Federal Acquisition Regulation (FAR). For disputes with private contractors, you may need to pursue a civil claim in court.
Many small businesses find that a formal written demand for payment, including the interest calculation, is enough to prompt payment. Send it by email or certified mail so you have proof of delivery.
Why this law matters for your cash flow
If you depend on federal contract work, the Prompt Payment Act is a legal protection that keeps money moving. Without it, large agencies and contractors could delay payment indefinitely, forcing small businesses to cover costs out of pocket while waiting to be paid.
The interest penalty is small — usually less than 2 percent per year — but it is not meant to be a profit. It is meant to make late payment expensive enough that agencies and contractors prioritize paying on time. For a business waiting for a $50,000 payment, even a small interest penalty adds up quickly if the payment is weeks late.
Understanding the Prompt Payment Act also helps you negotiate contracts. If a contractor offers you a 45-day or 60-day payment term, you know that is longer than the law requires for federal work, and you can push back or ask for interest if they miss that important date.
Frequently Asked Questions
Does the Prompt Payment Act explore to state and local government contracts?
No. The law applies only to federal contracts. Some states and cities have their own prompt payment laws, but they vary widely. Check your state or local government's procurement rules to see what payment timeline applies.
What if my invoice was lost or delayed in the mail?
The 30-day clock starts when the agency or contractor receives your invoice, not when you send it. If you mailed a paper invoice and it was delayed, the clock did not start until they received it. This is why email or portal submission is safer — you get a time-stamped receipt.
Can a contractor refuse to pay me interest if they say the invoice was wrong?
If the invoice was genuinely incomplete or incorrect, the clock pauses while they ask you to fix it. Once you resubmit a corrected invoice, a new clock starts. However, if they reject your invoice without a valid reason, or if they accept the work but dispute the invoice later, you may still be owed interest for the delay.
What interest rate applies if the payment is late?
The Treasury Department sets the rate quarterly. It is typically between 1 and 2 percent per year, but it changes. You can find the current rate on the Treasury's website under "Interest Rates for Federal Payments." The rate that applies is the one in effect on the day the payment became overdue.
Do I have to hire a lawyer to collect interest on a late payment?
Not necessarily. Many agencies and contractors will pay interest if you ask for it in writing with documentation. Send a letter or email stating the invoice date, payment date, days late, and the applicable interest rate. If they refuse, you can consult a lawyer about your options, but many small business disputes are resolved without litigation.