Prompt Payment Act Compliance for AP Teams
The federal Prompt Payment Act requires the government to pay a proper invoice within 30 days, and it makes interest accrue automatically when payment runs late. On construction contracts, prime contractors owe their subcontractors within seven days of receiving the government's payment.
Those two clocks are the whole compliance question for most AP teams, and both of them are timing problems rather than policy problems. Nobody sets out to pay a subcontractor on day 12. The invoice sits waiting on an approver, the payment run happens Thursday, and the statutory deadline passes without anyone in AP knowing it existed.
The interest rate is set by Treasury and resets every six months, which is worth knowing before you trust any figure you find quoted online. It applies to late federal payments and, through contract flow-down provisions, shapes what a prime owes a subcontractor when the chain breaks down. Construction firms feel this most acutely, which is why prompt-pay rules sit alongside retainage and lien waivers in the construction payment management stack rather than off in a legal silo.
State prompt payment statutes add a second layer that most guides handle badly, mixing federal and state rules together as though they were one regime. They aren't. Federal law governs the government paying contractors. State statutes generally govern private and construction payment, with their own windows and their own interest rates.
Key Takeaways
The federal Act sets a 30-day clock that starts at the later of two events, either the billing office receiving a proper invoice or the government accepting the goods or services.
Interest penalties accrue automatically under 5 CFR Part 1315. A contractor doesn't have to request them, and an agency can't waive them by ignoring them.
On construction contracts, a prime has seven days from receiving the government's payment to pay each subcontractor, and that obligation flows down through the tiers.
A separate FAR rule pushes agencies toward a 15-day accelerated payment goal for small-business primes and for primes that pay small-business subcontractors on an accelerated basis.
State prompt payment acts are a distinct regime governing private and construction payment, with different clocks and different interest rates in each state.
Compliance failures are almost always approval-lag failures. The statutory clock runs from invoice receipt, not from the day the invoice reaches the person who has to sign off.
What does the prompt payment act require, and when does the clock start?
The Prompt Payment Act is a federal statute, codified at 31 U.S.C. Chapter 39, that requires federal agencies to pay contractors on time and to pay interest when they don't. The standard window is 30 days.
The precise trigger matters more than the number. FAR 52.232-25 sets the due date as the later of 30 days after the designated billing office receives a proper invoice, or 30 days after government acceptance of the supplies or services. Two conditions, and the clock runs from whichever happens second.
"Proper invoice" is doing a lot of work in that sentence. To qualify, an invoice has to carry:
The contract number and the invoice date and number.
A description of the supplies delivered or services performed.
The amount due and the payment terms.
Remittance details for where the money should go.
The name and title of the person the agency should contact about it.
An invoice missing any required element isn't proper, which means the clock hasn't started, which means the contractor waiting on payment may be waiting on nothing. Agencies are supposed to notify a contractor of a defective invoice within seven days, but "supposed to" and "always do" are different things.
Congress passed the original Act in 1982 and amended it substantially in 1988, and the 1988 amendments are the ones that gave the statute teeth by adding automatic interest penalties and the subcontractor flow-down provisions. Before that, a contractor's only real remedy for slow payment was to complain.
The scale involved is not trivial. Federal contract obligations ran roughly $755 billion in fiscal year 2024, with about $183 billion of that awarded to small businesses, according to GAO's analysis of USAspending data. A statute governing payment timing across that volume is worth understanding precisely.
What is the current prompt payment act interest rate?
According to Treasury's Bureau of the Fiscal Service, the rate is 4.75% for the period July 1 through December 31, 2026, published in Federal Register notice 2026-13903 on July 9, 2026. Treasury issues the notice twice a year.
Two operational points follow from the semiannual reset. First, any rate you find quoted in an article, a training deck, or an AI-generated answer is stale the moment the period turns over, so check the current Federal Register notice rather than trusting a number you remember. Second, the applicable rate is the one in effect when the payment became late, not the one in effect when someone eventually calculates the penalty.
The same rate serves double duty as the Contract Disputes Act interest rate, which is why you'll sometimes see it referenced in claims contexts that have nothing to do with routine invoice payment.
When do interest penalties apply, and when don't they?
Interest starts accruing the day after the due date and runs until payment, and 5 CFR Part 1315 makes that automatic. The contractor doesn't submit a request, doesn't file a claim, and doesn't have to notice the payment was late.
That automatic quality is the part people get wrong. An agency that pays late owes interest whether or not the contractor ever mentions it, and an agency can't extinguish the obligation by processing the payment quietly.
The exceptions are narrower than contractors sometimes hope:
Amounts genuinely in dispute don't accrue interest while the dispute is open, though the undisputed portion still does.
Retainage withheld under the contract's own terms isn't a late payment, since it isn't due yet.
Invoices that were never proper don't start the clock, which is why defective-invoice notices matter so much on both sides.
Certain contract financing payments and specific contract types sit outside the routine framework.
Interest accrues at the published rate but stops after one year, and it doesn't compound indefinitely. On a single mid-size invoice the dollar amount rarely alarms anyone. Across a portfolio of contracts with chronic payment lag, it becomes a number the CFO asks about.
How does payment flow down to subcontractors on federal work?
The Act reaches subcontractors indirectly, through mandatory clauses the prime contractor has to include in its own subcontracts. The government doesn't pay subs directly, so the statute obligates the prime to pass payment down on a defined schedule.
That flow-down is what makes prompt-pay compliance an AP problem for contractors rather than a contracts-administration footnote. A prime can be perfectly current with the government and still be out of compliance with its subcontractors, and the second failure is the one that damages the relationships the business runs on. Nearly three-quarters of subcontractors reported payment delays exceeding 30 days in 2023, according to Rabbet's 2024 Construction Payments Report, and the same research put the total cost of slow construction payments at roughly $273 billion, close to 14% of all construction spending.
The imbalance is structural rather than incidental. Levelset's construction payment research found general contractors roughly four times more likely than subcontractors, and twenty times more likely than material suppliers, to report always being paid on time. Prompt-pay statutes exist precisely because payment reliability degrades as you move down the chain.
How fast must a prime pay a subcontractor on a construction contract?
Seven days. FAR 52.232-27 requires the prime contractor to pay each subcontractor within seven days of receiving payment from the government, and the clause flows down to lower tiers on the same terms.
Seven days is tight for an AP department accustomed to a semimonthly check run. It's also unforgiving in a specific way, since the clock starts on receipt of the government's payment, an event the AP team may learn about days later if treasury and payables don't share a system. I'd check that handoff before checking anything else, because a two-day internal notification lag consumes almost a third of the statutory window before AP has done anything wrong.
Withholding is permitted, but only with process. The prime has to notify the subcontractor of the amount withheld and the reason, and it has to pay interest on any amount improperly withheld. Retainage held under the subcontract's own terms is a different matter, and how construction retainage works and when it releases turns on the subcontract language rather than on the federal clause. Payment-security arrangements like a joint check agreement can complicate the timing further when a supplier sits behind the subcontractor in the chain.
Documentation closes the loop. Lien rights, prompt-pay obligations, and payment records intersect at the point where a sub signs off, which is why conditional and unconditional lien waivers should be tracked against payment dates rather than filed separately. The same discipline applies to tax reporting, since 1099-NEC obligations for construction subcontractors draw on the same payment ledger the compliance record depends on.
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What are the accelerated-payment rules for small businesses?
A FAR rule directs agencies toward a 15-day payment goal for small-business prime contractors, and for prime contractors that themselves pay small-business subcontractors on an accelerated basis. It sits in FAR Subpart 32.9 alongside the standard prompt-payment provisions.
The framing is a goal rather than an entitlement, which matters legally. A small business doesn't earn interest at day 16 the way a contractor does at day 31 under the standard clock, since the accelerated schedule doesn't carry the same automatic penalty.
There's an incentive embedded in the second half of the rule that primes routinely miss. Paying small-business subcontractors on an accelerated basis is what qualifies a prime for accelerated payment itself. If your subcontractor base skews small, moving those payments up isn't only a compliance posture, it's a cash-flow trade where you get paid faster in exchange for paying faster.
Which payments do state prompt payment acts govern?
State prompt payment acts govern a different universe. The federal statute covers the government paying its contractors, while state acts typically cover private construction payment and state or municipal public works, each with its own timetable and interest rate.
Conflating the two is the single most common error in coverage of this topic, and it produces confidently wrong answers. A subcontractor on a private commercial project in Texas falls under Texas statute, if any protection applies at all, rather than under the federal Prompt Payment Act, and the numbers are different.
Federal Prompt Payment Act | State prompt payment acts | |
Who it binds | Federal agencies paying contractors; primes paying subs on federal work | Private owners, contractors, and state or local public entities |
Standard clock | 30 days for the government; 7 days prime to sub on construction | Varies by state, commonly 30 to 45 days owner to contractor and 7 to 10 days contractor to sub |
Interest | Treasury rate, reset semiannually, accrues automatically | Set by statute, often a flat percentage per month; frequently requires demand |
Enforcement | Automatic penalty under 5 CFR 1315 | Private action; some states add attorney-fee shifting |
Waivable by contract | No | Varies; several states prohibit waiver, others allow it |
Federal figures per FAR 52.232-25, FAR 52.232-27, and 5 CFR Part 1315. State provisions vary and should be confirmed against current statute.
What does the Texas prompt payment act require?
Texas runs two separate regimes, and the distinction trips people up constantly. Chapter 2251 of the Government Code covers payments by state and local governmental entities, while Chapter 28 of the Property Code covers private construction payment.
Under the public-entity rules, a governmental body's payment becomes overdue on the 31st day after the latest of goods delivery, service performance, or receipt of an invoice, with statutory interest running after that. Private construction payment operates on its own schedule running from receipt of a payment request, with contractors owed by owners and subcontractors owed by contractors on defined intervals after that.
Texas also has a Prompt Payment of Claims Act, which is insurance law and has nothing to do with construction or procurement. Search results mix the two constantly. If someone in your organization forwards a "Texas prompt payment" article, confirm which statute it's about before acting on it.
Which other states have prompt payment acts?
Nearly every state has one, and the state cluster matters most for contractors operating across jurisdictions. Florida, Illinois, California, Pennsylvania, Ohio, Virginia, and Missouri all maintain prompt payment statutes with meaningful differences in timing, interest, and enforcement.
The shared pattern across these statutes is consistent enough to plan around:
A defined window for owner-to-contractor payment, usually somewhere between 20 and 45 days after a proper pay application.
A shorter downstream window for contractor-to-subcontractor payment, often seven to ten days after the contractor is paid.
Statutory interest on late amounts, commonly expressed as a monthly percentage rather than the annual rate the federal statute uses.
Grounds for lawful withholding, typically tied to disputed work, defective performance, or missing documentation.
Attorney-fee provisions in some states, which changes the economics of enforcement considerably.
If you operate in more than two or three states, maintaining a simple matrix of these five variables per state is worth an afternoon of a paralegal's time. Most contractors discover they've been applying their home state's clock to out-of-state projects.
How do AP teams stay inside every prompt-pay window?
Shorten approval time and schedule payment against the statutory date rather than the payment calendar. Every prompt-pay failure I've seen traces back to one of those two things, and neither is a legal problem.
The pattern is familiar to anyone who's run a payables function. An invoice arrives, gets logged, and then waits, because the project manager who has to approve it is on a site three states away and checks email at night. Meanwhile the clock started at receipt. By the time approval lands, the remaining window is too short for a check run, and the payment goes out late on a technicality nobody was tracking.
Why does manual approval lag create statutory risk?
Because the clock starts when the invoice arrives, not when it becomes approvable. Every day between receipt and approval comes out of the payment window, and manual routing burns that time in ways nobody logs.
A seven-day subcontractor window makes this acute. Two days for internal notification that the government payment landed, two more waiting on a project manager's sign-off, and one for the payment file to reach the bank leaves almost no margin for a single question about a line item. Teams that use AP automation to improve cash flow usually find the compliance benefit arrives before the cash benefit does, simply because routing rules and mobile approvals compress the part of the cycle that was never adding value.
The other reason to fix this is that the same lag distorts your metrics. Chronic approval delay inflates days payable outstanding in a way that looks like deliberate working-capital management on a dashboard, while actually representing statutory exposure. Two very different conditions produce the same number.
How do you prove on-time payment for an audit?
Show the timestamped chain from invoice receipt through payment settlement, tied to the specific invoice. An auditor or a contracting officer wants to see when the invoice arrived, when it was approved, when payment was released, and when the funds actually moved.
Bank records alone won't do it, because they show settlement without showing receipt. The gap between those two dates is exactly what's in question. Electronic payment helps considerably here, since ACH payments carry remittance data and produce a settlement record tied to the payment file, while a check produces a mailing date and a clearing date with an unexplained span between them.
Where a deadline is genuinely tight, real-time payments close the settlement gap to minutes and timestamp it precisely, which is useful on the last day of a seven-day window. Reliability of this whole record depends on payment data flowing back to the invoice rather than living in a separate banking system, and it's worth auditing your own trail before someone else does. Pull three subcontractor payments from last quarter and try to reconstruct the timeline from your systems. If it takes more than a few minutes, it won't hold up when the request comes with a deadline attached.
How Corpay helps AP teams meet prompt-pay deadlines
Prompt-pay compliance is a timing discipline, and approval lag is what breaks it. Corpay's AP automation captures invoices on arrival, routes approvals by rule instead of by email, and schedules payment against the statutory due date rather than the next batch window. For contractors working the seven-day subcontractor clock, that difference is the whole margin, and it works alongside NetSuite, Sage Intacct, Dynamics 365, Acumatica, and the construction accounting systems already in place through 180+ ERP integrations by API, SFTP, or file-based connection.
Delivery and proof are the other half. Payments move electronically through Corpay's payments automation, which gets funds to subcontractors fast enough to meet a tight flow-down window, and every payment reconciles back to the invoice so the receipt-to-settlement timeline is on record when an auditor or a contracting officer asks for it. Start with Corpay AP Automation if approval routing is your bottleneck, or Corpay Complete if you want invoice capture through settlement in one system. Vendor records and payment terms stay current alongside the rest of your vendor management practices, which keeps the statutory clock tied to accurate remittance data.
Frequently Asked Questions
What is the prompt payment act?
The Prompt Payment Act is a federal statute at 31 U.S.C. Chapter 39 requiring federal agencies to pay contractors on time and to pay interest automatically when they don't. Congress enacted it in 1982 and strengthened it in 1988 by adding automatic interest penalties and subcontractor flow-down requirements.
How many days does the prompt payment act give the government to pay?
Thirty days, measured from the later of the billing office receiving a proper invoice or the government accepting the supplies or services. An invoice missing required elements isn't proper, so the clock doesn't start until the defect is corrected.
What is the current prompt payment act interest rate?
According to Treasury's Bureau of the Fiscal Service, it is 4.75% for July 1 through December 31, 2026, per the Federal Register notice published July 9, 2026. The rate resets every six months, so confirm the current notice rather than relying on a figure quoted elsewhere.
Does the prompt payment act apply to subcontractors?
Indirectly, through clauses the prime contractor must include in its subcontracts. On construction work, FAR 52.232-27 requires the prime to pay each subcontractor within seven days of receiving the government's payment, and the obligation flows down to lower tiers.
What does the Texas prompt payment act require?
Texas has two separate regimes. Chapter 2251 of the Government Code governs payment by state and local governmental entities, with payment overdue on the 31st day after the latest of delivery, performance, or invoice receipt. Chapter 28 of the Property Code governs private construction payment on its own schedule.
Do state prompt payment acts differ from the federal one?
Substantially. The federal Act binds federal agencies and primes on federal work, while state statutes generally govern private construction and state or local public works. Clocks, interest rates, waiver rules, and enforcement mechanisms all vary by state.
Is a prompt payment discount the same as the prompt payment act?
No. A prompt payment discount is a commercial incentive a supplier offers for early payment, like 2/10 net 30. The Act is a statutory deadline with interest penalties attached. They intersect only in the sense that agencies are directed to evaluate offered discounts against the government's cost of money, and business payment terms explains how those discount codes work.
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