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By Travis Yule — CEO & Founder, Full Send Funding
Federal work is slow-pay, not bad-credit. The Prompt Payment Act clock starts on a proper invoice — which makes invoicing accuracy the variable you control.
Government work is often described as the safest revenue a small business can win. The customer does not go bankrupt, the contract is enforceable, and the money arrives eventually. All of that is true, and none of it helps with payroll on the fifteenth.
The risk in government contracting is not that you will not be paid. It is when, and the gap between award and cash is longer, more procedural and less negotiable than almost anywhere else in commercial work. Companies do not fail on federal contracts because the customer defaults. They fail because they financed twelve months of performance out of a balance sheet built for three.
A commercial customer who likes you can decide to pay early. A federal customer cannot. Payment runs through a defined process with defined actors, and every stage has a clock that does not care about your cash position.
The sequence, in outline:
General structure of the federal payment cycle. The Prompt Payment Act is 31 U.S.C. §3901 and following. Specific vehicles, agencies and contract terms vary — this is information, not legal advice.
The federal Prompt Payment Act (31 U.S.C. §3901 and following) sets the government's clock, generally thirty days from a proper invoice, with interest owed on late payment. Two words in that sentence do the work: proper invoice. The clock does not start when you send something. It starts when you send something that meets every formal requirement. An invoice rejected for a line-item mismatch or a missing document has not started the clock at all — it has consumed two weeks and started nothing.
That single mechanic is the largest controllable variable in government contract cash flow, and it is administrative rather than financial. Contractors who invest in getting invoices right the first time collect materially faster than equally capable competitors who do not.
If you are a subcontractor to a prime, add a further layer: the prime's own cycle sits on top of the government's.
The Prompt Payment Act requires a federal prime to pay its subcontractors within seven days of receiving payment. That is a real protection and worth knowing. But it starts when the prime is paid — so your cycle is the government's cycle plus the prime's internal processing plus that seven days, and it is entirely dependent on a party you do not control filing correctly.
The practical implication: as a sub, your cash cycle is a function of the prime's back office, not your own. It is worth asking, before signing, how the prime invoices, how quickly it has historically been paid on this vehicle, and what its process is for passing payment down.
The government's own answer to the length of the cycle is contract financing, and many contractors never ask for it.
Progress payments reimburse a percentage of costs incurred as performance proceeds, on eligible contracts, before delivery. They are not a loan and carry no interest — they are the government funding a portion of your work in progress. The customary rate for a small business is higher than for a large one, which is a deliberate policy choice in your favour.
Performance-based payments pay on the achievement of defined, verifiable milestones rather than on costs incurred. Where available they are generally preferable, because they are not tied to a cost-reporting apparatus and can be structured to land where your cash outflows are heaviest.
Both are negotiated at contract formation and both are far easier to obtain then than to add later. The question worth asking on any long-duration award is simply: what contract financing is available on this vehicle, and what would I have to do to qualify for it? A contractor who finances twelve months of performance from their own balance sheet when progress payments were available has made an expensive choice by omission.
Ordinarily, claims against the United States cannot be assigned. The Assignment of Claims Act creates the exception: with the contract permitting it, a contractor may assign amounts due under a federal contract to a bank or other financing institution, and the government may be required to pay the assignee directly.
This is the mechanism that makes receivables financing possible on federal work at all, and its practical consequences are worth stating plainly:
If you intend to finance federal receivables, check the assignment clause before you sign, not when you need the money.
The compounding problem is that the largest costs in most government work land at the start:
Set against a cycle that runs from performance through invoice, approval, payment office and — for a subcontractor — a prime, the shape is clear. This is a business that requires substantially more working capital per dollar of revenue than commercial work of the same size, and the requirement is heaviest exactly when a new award is won.
A contractor with a clean, funded federal contract sometimes finds a bank less enthusiastic than the credit quality of the customer would suggest. The reasons are structural rather than a judgement on the business:
None of that means the business is weak. It means the receivable is unusual, and the file is better served by a funder who reads bank activity and contract structure than by one applying commercial credit policy to a federal counterparty. That is how we underwrite: revenue and deposit behaviour first, with three or more months in business and $10,000 a month in revenue as the bar, a soft credit pull only, and a decision within 24 business hours. Amounts run from $5,000 to $10 million on terms of four months to three years, with no UCC-1 lien filed against the business — which matters here, because a blanket lien can collide directly with an assignment of claims.
Government contracting is a slow-pay business rather than a bad-credit business, and the two need entirely different responses. The cycle runs performance, invoice, approval, payment office and — for subcontractors — the prime's own processing, and the Prompt Payment Act's thirty-day clock starts only on a proper invoice, which makes invoicing accuracy the largest controllable variable in the whole cycle. Progress payments and performance-based payments are contract financing the government offers and many contractors never ask for. The Assignment of Claims Act is what makes receivables financing possible at all, and whether it can be perfected on your contract is decided by a clause you signed long before you needed the money.
To talk through a specific vehicle, call 518-312-0382 or check what you would qualify for.
Federal acquisition rules are detailed and change. This describes how the framework generally operates; your contract, your contracting officer and current regulation control. Information, not legal advice.
The Prompt Payment Act generally requires payment within thirty days of a proper invoice, with interest owed on late payment. The real cycle is longer, because it includes performing the work, preparing and submitting the invoice, obtaining contracting officer or COR approval, and payment office processing. For a subcontractor, add the prime’s own processing plus the seven days within which it must pass payment down.
One that meets every formal requirement of the contract and the payment system — correct portal, correct format, line items matching the contract exactly, and all required supporting documents. It matters because the thirty-day clock does not start until you submit one. An invoice rejected on a technicality has consumed two to four weeks of your own money and started nothing, which is why tracking your rejection rate is the cheapest cash-flow improvement available.
Reimbursement of a percentage of costs incurred as performance proceeds, on eligible contracts, before delivery. They are not a loan and carry no interest — it is the government funding part of your work in progress. The customary rate for a small business is higher than for a large one. They are negotiated at contract formation and far easier to obtain then than to add later.
Progress payments track costs incurred; performance-based payments pay on the achievement of defined, verifiable milestones. Where available, performance-based payments are often preferable because they are not tied to a cost-reporting apparatus and can be structured to land where your cash outflows are heaviest.
Yes, through the Assignment of Claims Act, which is the exception to the general rule that claims against the United States cannot be assigned. The contract must permit assignment, notice must be filed with the contracting officer and payment office in the prescribed form, and whether a no-setoff commitment is included materially changes the value to a financier. Check the assignment clause before signing, not when you need the money.
Not because of the customer’s credit. Because the file is structurally unusual: heavy customer concentration, a receivable complicated by assignability and setoff rights, option years that are not contracted revenue under most credit policies, and timing risk from shutdowns and continuing resolutions. None of that is a judgement on the business — it means the receivable needs a funder who reads contract structure and bank activity rather than one applying commercial credit policy to a federal counterparty.
More per dollar of revenue than commercial work of the same size, and most heavily right after an award. The costs that land first are mobilization and staffing — cleared personnel especially, where lead times are long — equipment and materials, compliance infrastructure such as conforming accounting systems and cybersecurity requirements, and bid and proposal costs incurred before any award exists. Set against a cycle measured in months, the requirement is front-loaded exactly when a win arrives.
Through the prime, which is required to pay subcontractors within seven days of receiving payment from the government. That is a real protection, but it begins when the prime is paid — so your cycle is the government’s plus the prime’s internal processing, and it depends on a party you do not control invoicing correctly. Ask, before signing, how the prime invoices and how quickly it has historically been paid on that vehicle.
Travis Yule founded Full Send Funding in 2021 and leads it from Middle Grove, New York. He writes about working capital from the underwriting side of the table — what the numbers actually have to say before a business gets funded.