On September 14, the Director of OMB Jacob Lew issued a formal memorandum to all Government agencies to speed up the payments to their vendors. This measure, as part of the Prompt Payment Act (PPA) is helpful even though it appears on the surface to be targeted toward helping the struggling economy. Once inserted into the government stream, directives do have a ripple effect as long as there is follow up and management – meaning the Agency heads are going to be asked in November to show they have begun to accelerate their payments.
But what is missing, my good friend Guy Timberlake at The ASBC.org points out, is to take this a step further and add oversight to the prime government contractors to expedite their payments to the sub-contractors. By far the majority of real small businesses working on behalf of the government can be found in the sub-contractor category. Accelerating payments from agencies to the primes without requiring the same prompt payment to the subs is an important missing ingredient to helping the economy grow to create more jobs.
While there is language in the FAR that does require prime contractors to pay their subs, it’s high time to dust off the language and force prudent cash management practices on any contractor that holds back payments as a way to enhance their own cash flow problems. Of course this is a scenario where invoice factoring may help to alleviate working capital issues. Call us right now to learn more how factoring will work for you.