Prompt Payment Act: Interest on Late Government Invoices

Quick answer: The Prompt Payment Act requires federal agencies to pay contractors within the contract terms, usually 30 days after receiving a proper invoice, and to pay interest automatically if they are late. For July to December 2026 the rate is 4.75% a year, compounded every 30 days for up to one year.

Selling to the government can be steady, well-paid work, but cash flow suffers if invoices sit in an agency's queue. The Prompt Payment Act is your protection. It sets due dates, defines a proper invoice and makes agencies pay government invoice interest without being asked. This guide explains how the Prompt Payment Act works, the current rate, what your invoice must include, how interest is calculated, and how state prompt pay laws compare. If you need a clean, complete invoice format, start with our free invoice generator.

Note: This is general information, not legal advice. Your contract terms and agency procedures control the details, so check them and speak to a government contracts adviser for disputes.

What the Prompt Payment Act covers

The Prompt Payment Act applies to federal executive agencies paying for property and services under contracts. The Bureau of the Fiscal Service administers it, and the detailed rules are in 5 CFR Part 1315. According to Treasury's Prompt Payment overview, once a vendor submits a proper invoice to the right office, the agency must pay on time, and in most cases must pay interest if it pays late.

The act does not force agencies to pay before the contract says so. It sets the default when the contract is silent and attaches a cost to missing the deadline.

When payment is due

Under 5 CFR 1315.4, if the contract does not set a date, payment is due 30 days after the payment period starts, which is when the agency receives a proper invoice (or accepts the goods or services, if later). Key timing rules:

Situation	Payment due
Standard goods or services, no contract date	30 days after receipt of a proper invoice
Meat, fish, fresh eggs and similar items	No later than 7 days after delivery
Perishable agricultural commodities	No later than 10 days after delivery, unless the contract says otherwise
Dairy products, edible fats or oils	10 days after receipt of a proper invoice
Improper invoice	Agency must return it within 7 days with all defects listed

Receipt dates matter. A mailed invoice counts from the date the agency stamps it received, or your invoice date if they do not stamp it. An electronic invoice counts from the date it arrives, or the next business day if it arrives after hours. If the agency has not formally accepted, acceptance is generally deemed to occur on the seventh day after delivery or completion, unless the contract sets a longer period.

Accelerated payment for small businesses

Treasury says agencies should pay early when an invoice is proper, early payment is in the government's interest and one of these applies: the invoice is under $2,500, the vendor is a small business, or the payment relates to an emergency, disaster or military deployment.

The Prompt Payment interest rate for 2026

The Fiscal Service sets the rate twice a year. Its Prompt Payment interest rate page lists 4.75% for July 1 to December 31, 2026. The rate that applies is the one in effect on the day after the payment due date, and it stays fixed for that late payment even if the published rate changes later.

How interest works under 5 CFR 1315.10:

• It runs from the day after the due date through the payment date.
• Calculations use a 360-day year.
• Unpaid interest is added to principal at the end of each 30-day period, so it compounds.
• It accrues for up to one year, or until you file a Contract Disputes Act claim.
• Amounts under $1 do not have to be paid.
• The agency must pay it automatically, with a notice showing the amount, days late and rate.

What a proper invoice must include

Most late payment disputes start with an invoice the agency says was not proper. Under 5 CFR 1315.9(b), include:

1. Your business name (as registered on the contract).
2. Invoice date.
3. Contract number or other delivery authorization, plus any line item numbers. See our guide to PO numbers on invoices.
4. Your invoice number or other agreed identifier. A consistent invoice numbering system helps.
5. Description, price and quantity of goods or services actually delivered.
6. Shipping and payment terms, unless the contract says these appear only there.
7. Your taxpayer identification number, unless agency procedures say otherwise. See tax ID on invoices.
8. Banking details for electronic funds transfer, unless waived. Our guide to bank details on an invoice covers the layout.
9. A contact name, title and phone number.
10. Any other documents the contract requires, such as receiving reports or timesheets.

Submit through the channel your contract names. Many agencies require an electronic invoicing system rather than email, and an invoice sent to the wrong place may not count as received.

Worked example: calculating late payment interest

An IT contractor sends a proper $48,000 invoice that the agency receives on August 3, 2026. The contract has no special terms, so payment is due 30 days later, on September 2, 2026. The agency pays on October 17, 2026, which is 45 days late. The rate in effect on September 3, 2026 is 4.75%.

• First 30 days: $48,000 x 4.75% x 30 / 360 = $190.00. At the end of the 30-day period this is added to principal: $48,190.00.
• Next 15 days: $48,190 x 4.75% x 15 / 360 = $95.38.
• Total interest owed: $190.00 + $95.38 = $285.38.

Without compounding the figure would be $285.00, so the 30-day rule adds a little, and more on longer delays. Treasury also publishes a compounding interest calculator. If the agency paid the $48,000 without the $285.38 and still had not paid it 10 days later, the contractor could request the additional penalty: 100% of the interest, here $285.38, because it is above the $25 minimum and below the $5,000 cap.

Why government invoices get rejected

An agency only starts the 30-day clock once it has a proper invoice, so a rejection can cost you weeks. Because the agency has 7 days to send back a defective invoice, you will usually learn about problems quickly, but each correction restarts the payment period from the date the corrected invoice is received. The most common causes are avoidable:

• Wrong or missing contract number, or a task order number that does not match the work billed.
• Line items that do not match the contract, such as a different description, unit or price.
• Billing for work not yet accepted, or for more than the quantity delivered.
• Missing attachments, such as timesheets, receiving reports or travel receipts the contract requires.
• Name or banking details that differ from your registration records.
• Sending to the wrong office or system, so the invoice is never logged as received.
• Duplicate invoice numbers, which systems often reject automatically.

Keep a checklist built from your contract's invoicing clause and run every invoice through it before you submit. For work billed in stages, tie each invoice to a defined, accepted deliverable.

Checking the interest on a late payment

When a late payment arrives, compare it with your records before you close the invoice:

1. Confirm the receipt date the agency used, and compare it with your own submission record.
2. Work out the due date: the contract date, or 30 days after receipt of a proper invoice (or acceptance, if later).
3. Count the days late, from the day after the due date to the payment date.
4. Check the rate used was the one in effect on the day after the due date.
5. Recalculate with 30-day compounding on a 360-day year, or use Treasury's calculator.
6. If interest is missing or short, contact the paying office promptly and keep the 40-day deadline for any additional penalty request in mind.

Record the interest as income separately from the invoice principal so your books reconcile.

If the agency pays late without interest

Under 5 CFR 1315.11, you can claim an additional penalty when:

• You received the late principal without the interest owed;
• The agency did not pay the interest within 10 days of the payment date; and
• You send a written request, postmarked, faxed or emailed by the 40th day after payment.

Your request should identify the invoice, ask for the overdue interest and the additional penalty, include a copy of the invoice and state the date you received the principal. The additional penalty equals the original interest, with a $25 minimum and a $5,000 maximum, and is calculated per invoice.

State prompt pay laws and private contracts

The federal act only covers federal agencies. For state and local government work, look to your state's prompt pay statute. Most states have one, and many cover public construction and some private construction contracts too. They differ on payment deadlines, interest rates, retainage and what counts as a proper invoice, so check the statute or your state comptroller's guidance before you set terms.

Federal construction primes also have obligations to subcontractors through contract clauses, including paying subs promptly and passing down interest when they pay late. In private B2B work, there is generally no federal prompt pay rule, so your invoice payment terms and contract are your main tools. Agree late payment fees in writing up front. For construction billing, our sibling posts on lien waivers and AIA G702/G703 billing cover related paperwork.

Comparing prompt payment rules

Setting	What sets the deadline	Interest
Federal agencies	Contract, else 30 days after proper invoice (5 CFR 1315)	Automatic, 4.75% for July to December 2026
State and local agencies	State prompt pay statute and contract	Set by state law, varies
Private construction	Contract, plus state prompt pay law where it applies	Set by state law or contract
Private B2B	Your contract and invoice terms	Only if agreed in the contract

Outside the US, other countries have their own regimes: see our guides to UK statutory late payment interest and India's MSME 45-day payment rule.

Tips to get government invoices paid on time

1. Read the contract's invoicing clause and note the system, address and required attachments.
2. Invoice only for delivered and accepted work, matching contract line items exactly.
3. Keep proof of submission and the receipt date.
4. Track every invoice against its due date, and follow up on any overdue invoice before day 30.
5. Check each payment for interest, and diary day 40 if interest is missing.
6. Escalate disputes through the contracting officer, and if needed see our sibling guide to a demand letter for payment.

Send a proper invoice the first time

The Prompt Payment Act only protects you once the agency has a proper invoice, so completeness is everything. Build yours with the invoice generator, add your contract number, TIN and bank details, and pick a clean classic invoice template. For US-specific fields, use the US invoice generator. Your finished invoice downloads as a PDF, free and with no sign-up.