A veteran-owned small business in the northwest part of the country is waiting for the government to pay them about $20 million in contract invoices.

The company executive, who requested anonymity for fear of retaliation, said their line of credit will only last so much longer before the banks and other creditors come asking for payment.

“Once we hit our limit, we are stuck and the only thing we can do is work with vendors to let them know we are good for money once the government reopens,” the executive said in an interview with Federal News Network. “Once you cross a certain threshold, banks want to see certain things because you are using 80% of your line of credit. They want to know why you’re past due on your receivables, so they want to see reports. Some banks do not understand the government resell process and the fact that we do not operate as a traditional business.”

This IT product reseller, which is located in a Historically Underutilized Business Zone (HUBZone), is one of thousands of companies, both large and small, suffering an extra level of pain during the partial government shutdown.

Not only are firms facing stop work orders, reduced contract scopes or terminations of convenience altogether, but many are waiting to get paid from invoices submitted on or before Sept. 30.

“There isn’t anyone working at the pay centers to approve invoices. A lot of what we do is net 30 stuff that goes through the Invoice Processing Platform (IPP) or other payment portals. We usually submit our invoices and the government approves them, but there isn’t anyone there to do that,” the executive said. “We have one instance where we need additional information before submitting our invoice, but no one is there to give us that information, so can’t submit the invoice. In general, we are submitting invoices and seeing what happens. Then our accounting team is doing outreach after 30 days, and that’s when we are getting bounce backs from emails.”

The company executive said agencies made a lot of purchases on Sept. 30, which means not only are the invoices more than 30 days old, but the vendors they bought from are expecting to get paid regardless of whether or not the government pays first.

“That is creating problems for us in terms of having to make changes and manage cash flow,” the executive said. “The majority of the vendors we deal with know the government space, they are aware of shutdown and they are being friendly about the situation. They aren’t hounding us about past due bills, but with others we are floating the money. We have to use our line of credit or make partial payments to keep them happy.”

Interest penalties accruing

Adding to the challenge of waiting for payments when the government reopens is that vendors are entitled to interest on late payments under the Prompt Payment Act.

The Treasury Department says the interest rate for calendar year 2025 is 4.625%.  This means that the small business which is owed $20 million in outstanding invoices would be owed about $74,000 in interest as of Nov. 10.

This one example is just the tip of the Prompt Payment Interest iceberg that agencies will face when they reopen.

Tim Soltis, a former federal financial management executive who worked at the Office of Management and Budget, Treasury and the Education Department during his 25-year career in federal service, said there usually isn’t money to pay for these interest payments, so agencies will have make to cuts elsewhere.

“They may have to cut overtime or cut hiring to make room for these payments,” he said. “At Education, I ran both the financial and contracting side and budget and contracting work hand-in-hand in many cases. The budget has to be adjusted before an invoice is paid and it must draw from the same appropriation line. With the shutdown happening at the beginning of the fiscal year, agencies probably have money to pay the interest, but they will have less things to spend on during the year.”

Soltis said over the last decade through IPP or other electronic payment processing systems, the government has basically solved the issue of late payments to contractors, which is why Congress passed the Prompt Payment Act in 1982.

He said a lot of agencies may have to figure out how to calculate and pay the interest because it’s been so long since they’ve had to do it.

When is the invoice accepted?

Eric Crusius, a procurement attorney and partner with Hunton law firm, said he rarely hears from clients about prompt payment issues. But contractors need to be prepared to claim interest when the government reopens.

“If the invoice was submitted before the shutdown, then it’s supposed to be applied automatically,” he said. “I’d recommend first sending an email to the contracting officer about the interest that is due, and then lodge a claim with the contracting officer if they don’t accept it. Unless the contract has some other terms and conditions, usually there is a seven-day invoice acceptance period no matter if the government is open or not. Now, the government could make the argument that there wasn’t anyone there to receive the invoice or product or service. I’d recommend to make a claim and argue it should be automatically accepted.”

The issue of when the government “accepts” a company’s invoice is one of the biggest, and most concerning, questions that vendors need to understand.

Soltis said an agency accepting an invoice is usually dependent on how the contract is set up.

“There are specific terms in the contract for invoice acceptance and that is what would drive it. But in general, the contracting officer technical representative or contracting officer usually is the one that has to accept an invoice. And legally if the government doesn’t respond within seven days, it’s considered constructive receipt,” he said. “But a lot of times it’s later than that, and a lot of contractors don’t want to get a customer upset over when an invoice is officially accepted.”

Soltis said the issues become more complicated with products where there needs to be someone at a receiving dock or in the agency to accept the package, validate it and match it to the invoice.

In fact, Dell Technologies and its partner Carahsoft said in an email to a vendor supplier, which Federal News Network obtained, that the order placed by the supplier would be on hold until they receive confirmation that the agency customer will be on site to accept the delivery.

Vendors should document all expenses

Solstis said another challenge will be that agencies will face a backlog of invoices when they return to the office.

“Contractors who are holding their invoices could be sabotaging themselves. What people will tell you is to submit it and let the government sit on it. Then you can say you submitted it and the government delayed paying. But if you hold your invoices, then you can’t claim interest,” he said. “When the government reopens, I would have a meeting with all contractors and go through their issues to make sure we are on the same page. It’s a two-step process. First, what invoices need to be paid? Second, how do you get the contractors whole? Which ones need to get paid with interest? That will become a budget issue because you have to figure out where the money comes from, how to move it around and how to prioritize payments.”

The industry executive said they really don’t know when the clock starts for invoices on Sept. 30 or those submitted during the shutdown.

“If no one is there to accept the invoice, does it start when the government comes back?” the executive said. “Our success rate on getting prompt payment penalties is very small. The majority of the time the agency says they accepted invoice on specific date and that is when the clock starts. Sometimes, they will wait until day 28 or 30 and reject the invoice, which starts the clock over again. I feel like DoD takes advantage of rejecting it and forcing us to resubmit it, and then they have more time to accept it and then 30 days to pay it.”

Crusius said this is why it’s imperative for contractors to log their expenses and costs associated with their contracts during the entire shutdown.

“They can file claims when they need to, and with certain contracts there are ongoing expenses even if they have tried to pair them down. A lot of that will be dependent on whether they received a stop work order or had their contract scope reduced or received a termination for convenience,” he said. “Contractors have to be diligent in writing down their costs so they can try to collect them.”

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