Full faith and credit crisis: The true costs of unpaid government invoices

The Supreme Court decision this week was clearly a victory for those who believe President Trump is overstepping his bounds by not paying invoices owed to contractors.

But that is merely the beginning of a fight that could turn the government contracting industry upside down.

The case involved payments due at the U.S. Agency for International Development. Hundreds of millions of dollars of unpaid invoices continue to pile up.

A district judge followed the Supreme Court decision with a ruling that blocked the Trump administration from freezing federal funding.

More appeals to the Supreme Court by the Trump administration are expected. Even if the administration ultimately loses, it may take months for contractors to get paid.

That is just at one agency. We are hearing anecdotally, and seeing in LinkedIn posts, that there is a drag on invoices across the government.

Unpaid invoices are a serious threat to the financial health of the government.

Government contractors submit invoices to their agency customers. Those invoices are usually not paid for 30-to-60 days. Contractors know they are going to be paid and so do their banks.

Those invoices are the collateral that banks use to provide lines of credit to contractors so they can meet their payroll and pay their bills until the government pays those invoices. The invoices represent the “full faith and credit” of the U.S. government.

Now, we are suddenly questioning whether the government will pay its bills.

Banks are in business to make money. They will either stop supporting the lines of credit, or that credit will become more expensive, which drives up the costs for contractors and in turn the government.

You don’t have to spend much time on LinkedIn to see anecdotes of layoffs and furloughs at government contractors. Especially hard hit are small businesses. The longer this drags on, the worse it will get.

The Supreme Court decision leans toward forcing the Trump administration to pay the government's bills. But that is where the drag on paying invoices runs straight into the massive layoffs of federal workers everywhere, driven by the Department of Government Efficiency.

Even if the courts force the Trump administration to pay the invoices, there are serious concerns that the people who sign and pay those invoices are no longer there. Sorting that out will take time.

Time literally means money in this case, as we will see small businesses shutter because they ran out of money while waiting for their payments.

The closet equivalent we have to the DOGE-led slowdown of federal operations is a government shutdown. Experts estimate for each day of a government shutdown, agencies need three-to-four days to catch up.

I remain confident the industry will get through this turbulence and payments will return to a more predictable cadence.

But the cost could be devastating to the many small businesses who have provided years of valuable work and support to the mission of their customers. That recovery could take years.