Government Contract Financing Guide 2025: Payment Terms & Options
Complete guide to government contract financing. Learn about progress payments, performance-based payments, financing options, and how to manage cash flow on federal contracts.
Quick Answer: Contract Financing
Government contracts offer various financing mechanisms to help contractors manage cash flow. Options include progress payments (based on costs incurred), performance-based payments (based on milestones), and standard invoicing with Prompt Payment Act protections.
Types of Contract Payments
Payment Methods
Delivery/Service Payment
Payment upon delivery of goods or completion of services
Progress Payments
Payments based on costs incurred during performance
Performance-Based Payments
Payments tied to achievement of milestones
Advance Payments
Rare—payments before performance (requires special approval)
Progress Payments
Progress payments are made to contractors based on costs incurred during contract performance. They're typically used for large, long-term contracts.
Progress Payment Rates
Progress Payment Requirements
- ✓Adequate accounting system
- ✓Contract exceeds $3 million
- ✓Fixed-price contracts primarily
- ✓Monthly billing typically
Performance-Based Payments
Performance-based payments (PBP) are tied to measurable milestones or outcomes rather than costs. They're preferred over progress payments when measurable events exist.
PBP Advantages
For Contractors
- • Higher payment percentage (up to 90%)
- • Less administrative burden
- • No cost accounting required
For Government
- • Pays for results, not costs
- • Incentivizes performance
- • Simpler to administer
Prompt Payment Act
The Prompt Payment Act requires agencies to pay contractors within specified timeframes and pay interest on late payments.
Payment Timeframes
Standard
30 days after proper invoice
Meat/Fish/Produce
7 days after proper invoice
Construction
14 days after proper invoice
Accelerated
Faster payments with discount
Late Payment Interest
If the government pays late, you're entitled to interest at the rate set by the Treasury. You don't need to request it—it should be paid automatically.
External Financing Options
Financing Sources
Contract Financing
Loans secured by government contracts
Assignment of Claims
Assign payment rights to a lender (with government consent)
Invoice Factoring
Sell invoices at discount for immediate cash
SBA Loans
SBA-backed loans for small business contractors
Frequently Asked Questions
How do I request progress payments?
Progress payments must be included in your proposal and negotiated into the contract. They're not automatic—you must request them during proposal preparation.
What if the government doesn't pay on time?
Contact your contracting officer. You're entitled to interest under the Prompt Payment Act. Keep records of invoice dates and payment dates.
Can I get paid before starting work?
Advance payments are rare and require special approval. Progress payments and PBP are available during performance. Most contracts pay after delivery or service.
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