If you do business with the federal government, you can nudge tardy paymasters by discounting invoices in return for faster payment.
Under the Prompt Payment Act of 1982, the federal government must pay vendors within 30 days, or be surcharged a penalty of 11 1/4% yearly interest on the bill's unpaid balance. A 15-day grace period is allowed.
The legislation also stipulates that if a company offers a discount in return for prompter payment, the government is obliged to accept, unless the ongoing Treasury rate would cause federal money in the bank to reap higher earnings than savings from the discount. Government calculations usually result in acceptance of a discount; a deal often struck is 2% net 20 days.
"Discounting is valuable leverage for small companies that need to maintain cash flow," says Kenton Pattie director of the Coalition for State Prompt Pay, a lobbying group based in Fairfax, Va. "A company doesn't do itself any harm by knocking off a few percentage points." The coalition, which has been pushing prompt-pay legislation in various states, was a major force behind the new federal law.
Chas. G. Stott & Co., a $30-million distributor of stationery, office supplies, and business furniture in Wasnington D.C has substantial contracts with the General Services Administration and other federal agencies. To dissuade the government from its notorious foot-dragging Stott routinely offers 2% discounts for payment within 20 days.
"We've been much more successful in getting paid on time since we started offering discounts," says Stott's president, Reed Smith. "The Prompt Payment Act has had a decided effect."
Timsco Inc., a $1.4-million screen printer also located in Washington, does about 15% of its business with the Government Printing Office. "We offer 2% off for payment in 20 days, and the GPO takes it all the time," says Walter Prichard, president of Timsco. "They make payment like clockwork."