The Prompt Payment Act requires government agencies and some private contractors to pay invoices within a set number of days—usually 30 days—or owe interest on the unpaid balance.
The act exists in two main forms. The federal Prompt Payment Act applies when you invoice the U.S. government or a federal contractor. Most states have their own versions that apply to state and local government payments. The core rule is the same: if a government body receives your invoice and doesn't pay by the deadline, they must pay you interest automatically, without you having to ask or sue.
This matters if you run a business, work as a freelancer or consultant, or supply goods or services to government agencies. It's a protection against the slow payment cycles that used to leave small vendors waiting months for money they were owed. The interest accrues daily and compounds, which creates real pressure on government offices to pay on time.
Key Takeaways
- The federal Prompt Payment Act requires U.S. government agencies to pay invoices within 30 days or pay interest; most states have similar laws for state and local payments.
- Interest accrues automatically from the due date forward—you do not have to file a claim or demand to receive it.
- The interest rate is set by the Treasury Department and changes quarterly; it is currently higher than it has been in years.
- Payment clocks start when the government receives a proper invoice, not when you send it, so delivery method and invoice completeness matter.
- Late payment interest is separate from any contract penalties and does not prevent you from pursuing other remedies if the payment is still wrong.
How the federal Prompt Payment Act works
Under the federal law, a government agency has 30 days from the date it receives a proper invoice to pay you. A proper invoice means it contains all the information the agency's contract or purchase order requires: your name and address, invoice number, invoice date, description of what you delivered or did, the amount owed, and payment instructions. If the invoice is incomplete, the clock does not start until the agency receives a corrected version.
If the agency does not pay by day 30, interest begins accruing on day 31. The rate is set by the Treasury Department and changes every quarter. As of early 2024, the rate is substantially higher than it was in previous years—check the Treasury's website for the current rate, which is listed by fiscal quarter. Interest compounds daily and continues to accrue until the payment clears your account.
You do not have to send a demand letter, file a claim, or take any action to earn the interest. It is automatic. However, you do need to keep records showing when the agency received your invoice, because that date is what starts the clock. Email with a read receipt, certified mail, or a delivery confirmation from your accounting system all work as proof.
State and local prompt payment laws vary widely
Most states have passed their own prompt payment laws that apply to state agencies, cities, counties, and school districts. The rules differ by state: some require payment in 30 days, others allow 45 days, and a few allow longer periods. Some state laws cover only construction contracts, while others cover all vendors. A few states do not have a prompt payment law at all.
If you work with a state or local government, check your state's statute or ask the agency's accounts payable department which law applies to your contract. The agency should tell you the payment deadline and the interest rate if payment is late. Some state laws set the interest rate in the statute itself; others tie it to a federal rate or a rate set by the state treasurer.
Local governments sometimes have their own payment policies that are stricter than state law. A city might promise to pay in 15 days even though state law allows 45. Always read the contract or purchase order, because that is what controls the payment timeline for your specific invoice.
When the payment clock starts and stops
The clock starts when the government agency receives your invoice, not when you send it. This is why delivery method matters. If you email an invoice to a general inbox and no one opens it for a week, those seven days do not count toward the 30-day window. The agency's records of receipt—or your proof of delivery—determine the start date.
The clock stops when the payment is actually deposited into your bank account, not when the check is mailed or the wire is initiated. If an agency mails a check on day 29 but it takes five business days to clear, the payment is still late, and interest continues to accrue until the funds are in your account.
If you submit an invoice, the agency requests changes, and you resubmit a corrected version, the clock restarts on the date the corrected invoice is received. This is why some invoices take longer to pay: not because the agency is slow, but because back-and-forth over details extends the timeline.
The interest rate and how it compounds
The federal interest rate is set by the Treasury Department and published quarterly. It is based on the average bond equivalent yield of 91-day Treasury bills, plus a fixed percentage. The rate changes on the first day of each fiscal quarter: October 1, January 1, April 1, and July 1. You can find the current rate on the Treasury's website under "Late Payment Interest Rates."
Interest compounds daily, which means each day's interest is added to the balance, and the next day's interest is calculated on the larger amount. Over a few months, this adds up. If an agency owes you $10,000 and pays 90 days late at a 9 percent annual rate, the interest alone will be roughly $225. If the delay stretches to six months, the interest approaches $450.
The interest is separate from any other remedies you might have. If the agency also underpaid you or paid the wrong amount, you can pursue that claim independently. The late payment interest does not resolve the underlying payment error; it only compensates you for the time the money was overdue.
What to do if a government payment is late
First, confirm the payment deadline by reviewing your contract, purchase order, or the agency's payment policy. Then track when you submitted the invoice and when the agency received it. If you have not received payment by the deadline, contact the agency's accounts payable department and ask for a status. Many late payments are simply lost invoices or invoices stuck in a queue.
If the agency confirms it received the invoice but has not paid, ask them to confirm the payment date in writing. Once the deadline passes, the interest begins accruing automatically, but you want documentation that the agency knows it is late. Send a follow-up email stating the invoice number, the date it was received, the due date, and the current date, and ask for a payment date.
If payment is still not made after another week or two, escalate to the agency's supervisor or the finance director. Many agencies have a process for handling late payment complaints. If the agency continues to refuse payment or claims the invoice is improper, ask them to specify in writing what is wrong with it so you can correct it. Do not assume the invoice is the problem; sometimes agencies delay payment for budget reasons and use invoice disputes as a cover.
Private contractors and prompt payment requirements
The federal Prompt Payment Act also applies to prime contractors—companies that have a direct contract with the government—when they pay their subcontractors. If you are a subcontractor and the prime contractor does not pay you within the required timeframe, the prime contractor owes you interest just as the government would.
However, the rules for subcontractors are slightly different. The prime contractor has 7 days to receive payment from the government, and then must pay the subcontractor within 7 days of receiving that payment. If the prime contractor holds your payment longer than that, interest accrues. Some states extend this requirement to private contractors on state-funded projects, so check your state law.
If a prime contractor is not paying you on time, the first step is to send a written demand for payment that references the Prompt Payment Act and the interest owed. Many contractors will pay once they realize you know the law. If they still refuse, you may need to pursue a claim in small claims court or file a lien, depending on what type of work you did and what your state allows.
Frequently Asked Questions
Does the Prompt Payment Act apply to private companies that are not government contractors?
No. The Prompt Payment Act only applies to government agencies and to prime contractors paying subcontractors on government projects. Private companies that buy from other private companies are not required to pay interest for late payment unless the contract between them says so. However, many states have separate laws that require interest on overdue invoices in certain industries, such as construction.
What if the government says my invoice is improper and refuses to start the payment clock?
The agency must tell you in writing what is wrong with the invoice and give you a reasonable time to correct it. If they reject an invoice without explanation or reject it for a reason that does not match the contract requirements, you can dispute that rejection. Keep records of every communication. If the dispute goes to court, the judge will look at whether the invoice actually violated the contract terms or whether the agency was just stalling.
Can I waive my right to prompt payment interest?
No. The Prompt Payment Act is a federal law, and you cannot contract around it. If a government agency asks you to sign an agreement waiving late payment interest, that clause is void. You are may have access to to the interest regardless of what the contract says. Some agencies may ask you to waive it anyway; refuse.
What happens if the government pays me but the amount is wrong?
Late payment interest does not resolve payment errors. If the agency underpaid you or paid the wrong amount, you still owe the interest on the full amount that should have been paid, and you can pursue a separate claim for the difference. For example, if you invoiced for $10,000, the agency paid $8,000 on day 40, you are owed interest on the full $10,000 from day 31 onward, plus the missing $2,000.
How do I prove when the government received my invoice?
Email with a read receipt, certified mail with a signature, or a delivery confirmation from your accounting software all work. If you hand-delivered the invoice, get a stamped receipt from the agency showing the date and time. If you mailed it, keep the postal receipt. The agency's own records also count as proof, so if they acknowledge receiving it on a certain date in writing, that date is binding on them.