Collecting from Uncle Sam takes patience, skilled invoice writing
- By David Hubler
- Jun 09, 2007
The keys to on-time payments are making timely contract amendments when needed, accurate billing in the first place and regular communications with agency contracting officials. ? TiTi McNeill, TranTech
Like landlords whose tenants are routinely behind in their rent, government contractors know that collecting payment from federal agencies can be a waiting game, despite legislation aimed at preventing delays.
Some agencies are better than others at paying promptly, said Rep. Jim Moran (D-Va.), a member of the House Appropriations Committee. He said the committee will examine prompt-payment issues as part of its acquisition reform agenda this year.
Although the Prompt Payment Act requires agencies to pay invoices within 30 days of receipt ? and interest penalties accrue when payments are late ? contractors say it often takes anywhere from 90 to 120 days to receive payment, sometimes more. Delays hamper their ability to meet payroll, make necessary purchases and hire staff for new or existing work.
"A lot of people, especially in the outsourcing or the collections world, want to collect for the federal government," said David Laud, director of operations at Vengroff, Williams and Associates, a Garden Grove, Calif., business processing outsourcing company. "Nobody really says, 'Hey, we want to collect from the federal government for you.' They find it very daunting. We did initially as well, believe me."
VWA has launched a government solutions program aimed at helping government contractors get paid on time and recover money that is past due.
Laud said VWA created the program when it examined some of its Fortune 500 clients that had federal contracts and found that payments were often delayed because invoices failed to follow government guidelines and comply with the Federal Acquisition Regulation.
"The government is not going to respond to your company's standard invoice, which doesn't happen to have the [correct] order number on it, so it doesn't go anywhere," said Mark Amtower, founder and partner of Amtower and Associates, a consulting firm that helps companies sell to the federal government.
As a simple example, Laud cited an agency purchase order for 10 pens. "If you send them an invoice that says '10 pens,' they're not going to pay it," he said. "It needs to say, 'line item 1, one pen; line item 2, one pen.'"
Agency contracting officers go over invoices line by line. When they find the first mistake, "they will slap a rejection stamp on the invoice and send it back," Laud said. It can take about 30 days to process each rejection and correction.
"Once an invoice gets to be about 365 days past due," Laud said, "the government de-obligates those funds that it had for the purchase order and, basically, it takes an act of Congress literally to get those funds back."
Ensuring prompt collection "is a huge pain in the neck, especially for the small and midsize businesses," which operate on small profit margins, said David Schmidt, a commercial credit consultant at A2Resources in Philadelphia. "It's great to get the business," he said, but too often, small companies aren't equipped to cope with all the invoice regulations.
Schmidt said companies should consider outsourcing their government invoices. "It's a great thing to get rid of," he said. "Let someone who knows what they're doing handle it."
Derrick Haliburton, federal collections manager at Hewlett-Packard Co., said VWA officials who manage the HP portfolio have a solid knowledge of federal contracting. VWA "adhered to HP processes and policies, and delivered strong financial results," he said. He declined to discuss the specifics of the program.
TranTech Inc. is a small, woman-owned information technology solutions company in Alexandria, Va., whose clients include the Defense Information Systems Agency and the General Services Administration. TiTi McNeill, president and chief executive officer of TranTech, said she has had some late payment experiences, especially when the company was first founded. Now she is much more familiar with the rules.
The keys to on-time payments are making timely contract amendments when needed, accurate billing in the first place and regular communications with agency contracting officials, McNeill said.
Schmidt said the payment problem can be a deterrent for companies that sell to the government only occasionally. "If you're in business with the government, you've got to suck it up and do it right," he said. "But if it's something you bumped into?you'll take the sale to make some money on it, but you might not go aggressively after it" because of billing issues.
Many companies write off "an exorbitant amount of their portfolio that deals with the federal government because they just don't know how to collect it," Laud said.
VWA's education campaign targets small and midsize federal contractors by "letting people know that there is someone out there who can service this [problem] and can navigate through all the bureaucracy and red tape and has some expertise in this field," Laud said.
The firm's government solutions program is not based on new technology. "It's more a type of process that is implemented [with] a lot of expertise," Laud said. The program has been able to reduce clients' past-due rates by at least 50 percent, he added, because many VWA employees are former government contracting officers who know how to comb through invoices and spot compliance errors.
"It's basically making sure that from a billing standpoint anyway, that everything is going out FAR-compliant so there will be no rejection," Laud said. When that is done, he added, "the worst-case scenario is they're getting paid 30 days past due as opposed to 180 days, or never."Associate editor David Hubler can be reached at email@example.com.