These common questions and
Answers have been updated to reflect comments and questions received since the publication
of the Prompt Payment final rule in late September 1999.
Q1. How does the Prompt Payment rule relate to Treasury’s EFT rule and the
FAR EFT rule?
A1. These three rules provide a regulatory foundation on which federal agencies can
rely to implement the EFT requirement of the Debt Collection
Improvement Act of 1996 (DCIA) for payments to government vendors. The Treasury EFT
rule at 31 CFR Part 208 requires that most federal
payments be made electronically, subject to certain waivers established in the rule. The
EFT rule does not provide waivers for vendor payments as a class of payments, however,
agencies may invoke waivers for a payment to a vendor under certain circumstances. There
are also hardship waivers available for sole proprietors.
The Prompt Payment rule at 5 CFR Part 1315requires vendors to
submit EFT information and a Taxpayer
Identification Number (TIN).
as part of a proper invoice, unless agency procedures
provide otherwise. Agency procedures may require, for example, that EFT information be
collected as a condition of awarding a contract and therefore may not require this
information as part of a proper invoice. Late interest penalties do not apply if the
vendor has failed to submit this information.
The FAR EFT rule at 48 CFR Parts 13, 15, 32
and 52, addresses the use of EFT for federal contract payments and also provides for the
collection of banking information from vendors. In particular, the FAR EFT rule provides
EFT contract clauses that agencies should use in their contracts with government vendors
requiring them to receive payments electronically in accordance with the DCIA.
Q2. What are the most significant changes which have been made to the Prompt Payment regulations?
A2. One of the most significant changes made to the Prompt Payment rule is that it requires vendors to submit EFT information and a TIN as part of a proper invoice, unless agency procedures provide otherwise. Late interest penalties do not apply if the vendor
fails to supply EFT information and the TIN as part of a proper invoice and it was required to include the information in the invoice.
The Prompt Payment rule also allows for early payment in certain circumstances if doing so is in the best interest of the government. Agencies may make early payment for single
invoices under $2,500, payments to small businesses, or payments related to emergencies, disasters, and military deployments.
The Prompt Payment rule also provides guidance to federal agencies on when to make payments for the Government-wide commercial purchase card. The rule instructs agencies to determine credit card payment dates based on an analysis of the total costs and total benefits to the federal government as a whole. When calculating cost and benefits, agencies are expected to include the cost to the government of paying early, which includes the interest the government would have earned, at the Current Value of Funds rate, for each day that payment was not made. A spreadsheet which calculates when an agency should pay a credit card invoice can be obtained by visiting the Prompt Payment Web site at http://www.fms.treas.gov/prompt/formulas.html.
II. INVOICE REQUIREMENTS
Q3. What is a Taxpayer Identification Number (TIN)?
A3. A Taxpayer Identification Number (TIN) is a nine digit Employer Identifying Number or Social Security Number which is required under the DCIA for debt collection and under the Internal Revenue Code for vendor income
reporting.
Q4. Is the provision of EFT information required for a proper invoice?
A4. If EFT information is not provided in an invoice and the vendor was required to include this information in the invoice, the invoice is improper and the agency must return the invoice within 7 days of receipt and identify all defects that prevent payment.
After receiving a corrected invoice with EFT information from the vendor, the payment period begins.
An agency is not responsible for late interest penalties if the vendor does not supply EFT information as part of a proper invoice and the vendor was required to include this information in the invoice, or if the EFT information is incorrect.
Q5. What happens if an agency reviews an invoice and determines that it is proper but its payment to a vendor is rejected because incorrect EFT information was supplied? Is the invoice determined improper and a new payment period initiated after
correct EFT information is supplied, or is there a specific amount of days in which the agency has to make a timely payment after correct EFT information is supplied?
A5. If an agency determines that the invoice is proper but has its payment to the vendor rejected because incorrect EFT information has been supplied, the Prompt Payment rule provides the agency with an additional 7 days after correct EFT information is submitted to make a timely payment before late interest penalties accrue. This is a
separate process from reviewing the invoice to determine if it is a proper invoice.
Usually, it is not possible for an agency to determine whether EFT information is correct or not until payment has been attempted.
Q6. Is a vendor required to submit EFT information and a TIN on an invoice if the information has been previously collected by an agency?
A6. Agencies may require banking information and the TIN in an invoice even if the information has been previously collected.
Q7. What happens when an agency determines that an invoice is improper?
A7. When an invoice is determined improper, an agency must return the invoice to the vendor as soon as possible but no later than 7 days after receipt of the improper invoice. When returning an improper invoice, agencies are required to identify all defects that
prevent payment.
If an agency fails to return the improper invoice to the vendor within 7 days of receiving the invoice, the number of days allowed for payment of a corrected invoice is
reduced by the number of days between the seventh day and the day the improper invoice is sent to the vendor. For example, if an agency receives an invoice on November 1 but does not return it as improper to the vendor until November 13, 5 days after required, and the
agency receives a corrected invoice on November 20, the payment due date is December 14, or 5 days earlier, if the payment was due 30 days after receipt of a proper invoice.
Q8. What is the role of the contracting office in ensuring that EFT information is collected as a condition of awarding a contract or as part of a proper invoice?
A8. In order to reflect the requirements of the Treasury EFT rule, the FAR EFT rule requires agencies to include EFT payment terms in all contracts for which payment by EFT is required. The agency may require this information as a condition of awarding a contract
or may require that the agency payment office, or other office, collect the information before the first request for payment.
Q9. May agencies withhold payments to vendors if EFT information required for a proper invoice is not received by the time the first invoice is submitted?
A9. The Treasury EFT rule requires that most federal payments be made electronically, subject to certain waivers established in the rule. The EFT rule does not provide waivers for vendor payments as a class of payments.
The FAR EFT rule requires agencies to include EFT payment terms in their contracts after January 1, 1999. As a result, agencies may withhold payments to vendors until or unless EFT information is submitted.
The Prompt Payment rule does not authorize agencies to withhold payments to vendors. However, the final rule requires a vendor to submit EFT information as part of a proper invoice if the vendor was required to submit it in the invoice, unless agency procedures
provide otherwise. If this information is not provided in the invoice, the payment period does not begin, nor are the agencies required to pay late payment interest penalties, until a corrected invoice containing this information is received.
Q10. Can agencies receive invoices which are delivered electronically?
A10. An agency may use electronic invoices and other computer-related media in place of paper documents to expedite payment transactions as long as there are adequate safeguards and controls in place to ensure the integrity of the data.
III. DETERMINING THE PAYMENT DUE DATE
Q11. When is an agency required to make payment to a vendor?
A11. Section 1315.4(f) of the Prompt Payment rule states that the period available to an agency to make a timely payment without incurring an interest penalty begins on the date of receipt of a proper invoice.
Section 1315.4(b) of the rule provides that an invoice is deemed to be received on the later of 1) the date a proper invoice is received by an agency if the agency annotates the invoice with the date of receipt, or 2) the seventh day after the date in which goods are delivered or services completed, unless acceptance occurs earlier or if a longer acceptance period is specified in the contract. If the agency fails to annotate an invoice with the date of receipt of the invoice, the date placed on the invoice by the contractor is used to determine the start date for the payment period.
Unless otherwise specified, Section 1315.4(g) of the Prompt Payment rule states that payment is due on either 1) the date specified in he contract, 2) in accordance with discount terms when discounts are offered and taken, 3) in accordance with Accelerated Payment Methods, or 4) 30 days after the start of a payment period, when a proper invoice is received.
Q12. When does the payment period begin if an invoice is misdirected to an office other than the designated agency office?
A12. The payment period does not begin until the date the invoice is received by the designated agency office. The Prompt Payment rule defines designated agency office as the office designated by the purchase order, agreement, or contract to first receive and review invoices. This office may be different from the office issuing the payment.
Q13. Do agencies count holidays and weekends when determining the payment due date?
A13. When calculating the payment due date, "day" means a calender day including weekends and holidays.
Q14. If the payment due date falls on a weekend or Holiday, when should payment be made?
A14. If the payment due date, including discount due dates, falls on a weekend or federal holiday, payment may be made on the following business day.
IV. ACCELERATED PAYMENT METHODS
Q15. Does the Prompt Payment rule allow agencies to use accelerated payment methods?
A15. The Prompt Payment rule expands the options for making early payments in certain circumstances if doing so is in the best interest of the government. Agencies may accelerate payments for single invoices under $2,500, payments to small businesses, or payments related to emergencies, disasters, and military deployments.
Q16. Is there a dollar limit for making accelerated payments?
A16. No, except for $2,500 for any single invoice.
V. APPLICATION OF THE PROMPT PAYMENT RULE
Q17. Are interagency payments subject to Prompt Payment late interest penalties?
A17. No. Prompt Payment late interest penalties do not apply to interagency payments. However, agencies are required to use electronic payment methods for interagency payments and to include advance billing and other payment terms in Interagency Agreements to ensure timely payments.
Q18. Do late interest penalties regulated by state, local, or foreign governments take precedence over the Prompt Payment late interest penalties?
A18. Yes. Late payment rates for utility services issued by state, local, or foreign governments take precedence over the Prompt Payment late interest penalties for determining the amount of interest due for late payments.
Q19. Are federal government vendors subject to Prompt Payment late interest penalties if they fail to make payment to their subcontractors?
A19. No, the Prompt Payment rule does not provide for late interest penalties for payments made to subcontractors. Under construction contracts, however, an agency may withhold payment to a prime vendor if they learn that the prime vendor has failed to pay their subcontractor in accordance to the terms of their contract.
Q20. Are travel reimbursements to federal employees covered under the Prompt Payment rule?
A20. No, the Prompt Payment rule does not cover travel reimbursements to federal employees. However, the Federal Travel Regulation interim rule (41 CFR Parts 301-51, 52, 54, 70, and 76) requires agencies to reimburse an employee within 30 days after the employee submits a proper travel voucher to the approving official. Late payments are subject to an interest penalty based on the Prompt Payment interest rate in effect.
VI. INTERIM RULE
Q21. What are the major provisions of the Prompt Payment interim rule? How does the interim rule change Prompt Payment coverage?
A21. The interim rule requires agencies to pay an interest penalty to federal government contractors whenever they make an interim payment under cost-reimbursement service contracts for more than 30 days after the agency receives a proper invoice for payment from the contractor. Agencies must immediately apply the revisions made by this interim rule to all interim payment requests received under cost-reimbursement service contracts awarded on or after December 15, 2000. The rule authorizes agencies, but does not require them, to apply the revisions to interim payment requests received under cost-reimbursement service contracts awarded prior to December 15, 2000.
Prior to the interim rule, interim payments under cost-reimbursement service contracts were not subject to Prompt Payment interest penalties because they were defined as contract financing payments, or authorized payments made prior to acceptance of goods and services. While contract financing payments remain uncovered by Prompt Payment, interim payments under cost-reimbursement service contracts awarded on or after December 15, 2000, are now subject to interest penalties.
Q22. What predicated the change in the interim rule?
A22. The interim rule was issued in order to implement Section 1010 of the National Defense Authorization Act for Fiscal Year 2001. Congress imposed a new statutory requirement on agencies to pay an interest penalty on interim payments that are made late under cost-reimbursement service contracts. This requirement is contained in Section 1010 of the Act, entitled "Interest Penalties for Late Payment of Interim Payments Due Under Government Service Contracts."
Q23. When do the changes proposed in the interim rule take effect?
A23. The interim rule became effective upon the date of its publication in the Federal Register and therefore requires accelerated agency implementation. This rule was issued as an interim rule, rather than as a proposed rule, in order to comply with the statutory requirement for implementation by December 15, 2000. Agencies must immediately apply the revisions made by this interim rule to all interim payment requests received under cost-reimbursement service contracts awarded on or after December 15, 2000. The rule authorizes agencies, but does not require them, to apply the revisions to interim payment requests received under cost-reimbursement service contracts awarded prior to December 15, 2000.
VII. DISCOUNTS/REBATES
Q24. Do references to the governmentwide commercial purchase card in the rule also refer to cards such as centrally-billed travel and fleet cards?
A24. Yes, the governmentwide commercial purchase card is defined in the rule at Section 1315.2(x) as purchase cards available for the purchase of goods or services for amounts under the simplified acquisition threshold set by the FAR; travel expenses; purchases of fuel; or other purposes as authorized by the contract.
Q25. Are agencies permitted to take rebates by making early credit card payments?
A25. The Prompt Payment rule provides guidance to federal agencies on when to make payments for the Government-wide commercial purchase card. The rule instructs agencies to determine credit card payment dates based on an analysis of the total costs and total benefits to the federal government as a whole. When calculating cost and benefits, agencies are expected to include the cost to the government of paying early, which includes the interest the government would have earned, at the Current Value of Funds rate, for each day that payment was not made. A spreadsheet which calculates when an agency should pay a credit card invoice can be obtained by visiting the Prompt Payment Web site at http://www.fms.treas.gov/prompt/formulas.
Q26. Are vendors required to offer discounts to federal agencies? Similarly, are federal agencies required to accept discounts if offered by a vendor?
A26. It is the vendor’s decision to offer a discount to a federal agency, not a requirement. The Prompt Payment rule allows agencies to take discounts if it is economically justified and if acceptance of goods or services has occurred. If the discount is taken, payment is due in accordance with the discount terms. If the discount is not taken, payment is due within 30 days or receipt of a proper invoice, unless accelerated payment methods are used.
Q27. When does the start date begin for an agency taking a discount?
A27. The period available for taking a discount is calculated from the date placed on a proper invoice by the vendor. If there is no invoice date on the invoice submitted by the vendor, the discount period will begin on the date a proper invoice is received by the agency.
VIII. LATE PAYMENT INTEREST PENALTIES
Q28. How do I determine the amount of my late interest penalty?
A28. Interest is calculated from the day after payment was due until the day payment is made. The interest rate in effect on the day after the payment due date is used to calculate the interest penalty. The following formula can be used to determine simple daily interest:
P(r/360*d)
P is the amount of principal;
r equals the Prompt Payment interest rate; and
d equals the number of days for which interest is being calculated.
The following formula can be used to determine monthly compounding interest:
P(1+r/12)n * (1+(r/360*d)) -P
Additional information on the calculation of late interest penalties including examples can be accessed on the Prompt Pay Web site at http://www.fms.treas.gov/prompt/formulas.
Q29. If payment is due before the end of a fiscal year but not paid until the following fiscal year, from which fiscal year budget should the late interest penalty be paid ?
A29. Section 3902(f) of the Prompt Payment Act provides that an agency must pay a penalty out of amounts made available to carry out the program for which the penalty is incurred. Therefore, if a payment due date falls in FY 1999 but payment is not made until FY 2000, interest should be paid from FY 1999 funds.
Q30. If a late interest penalty is not paid on the day the principal amount was paid and the payment is late, does an additional penalty apply?
A30. A vendor is entitled to an additional penalty if he or she does not receive a late payment interest penalty within 10 days of receiving the principal amount. However, the vendor must make a written request for payment within 40 days of when the principal amount is paid and include a copy of the original invoice in which payment was made late.
Q31. What amount of interest is required to be paid?
A31. Any late interest penalty in an amount of $1.00 or over is required to be paid to the vendor, however, interest may not accrue for more than one year.
A vendor is also entitled to an additional penalty if he or she does not receive a late payment interest penalty within 10 days of receiving the principal amount. Any additional penalty owed is equal to one hundred percent (100%) of the original late payment interest penalty but cannot exceed $5,000.
Q32. If no contract exists between the agency and a utility company, is the utility company entitled to a Prompt Payment late interest penalty if they also charge a flat fee for late payments?
A32. No. A flat fee charged by a utility company is considered a local established rate and is therefore used in lieu of the Prompt Payment interest rate.
Q33. Can Prompt Payment interest accrue on interest that is owed and not paid?
A33. When an interest penalty is owed and not paid, interest will accrue on the unpaid amount until paid, however, interest will not continue to accrue after one year or if a claim has been filed under the Contract Disputes Act.
IX. Remedies for Non-Compliance
Q34: What should a vendor do if an agency fails to pay interest required by the Prompt Payment Act?
A34: If an agency fails to pay interest required by the Prompt Payment Act, the vendor should consult with its legal counsel to determine its remedies under the Prompt Payment Act (31 U.S.C. ยง 3901 et seq.) and other applicable laws.
FOR MORE INFORMATION
For more information on the Prompt Payment rule, please contact Denice Wilson at (202) 874-9428 or e-mail denice.wilson@fms.treas.gov.
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