FAR Part 32: Progress Payments, EFT, and Assignments

Federal Acquisition Regulation Part 32 sets the rules for how the government pays its contractors and when it will finance work before delivery. It covers routine invoice payments after acceptance, and it covers the financing tools available before acceptance: progress payments based on costs, performance-based payments, commercial interim and advance payments, and the assignment of contract receivables to a lender.¹ Which mechanism ends up in your contract determines whether you fund the government’s project out of pocket for months or draw cash as the work progresses.

The Two Payment Categories That Drive Every Rule

Part 32 draws a sharp line between two kinds of disbursement, and almost every other rule in the regulation follows from that line. A contract financing payment is money the government sends you before it accepts the deliverable. An invoice payment is money it sends after acceptance.²

Contract financing payments include advance payments, progress payments based on cost, performance-based payments, commercial interim and advance payments, and interim payments under cost-reimbursement service contracts. Invoice payments include payments for partial deliveries the government has accepted, final cost or fee settlements, and any payment made under the Prompt Payment Act.² The simplest test for which category applies: has the government formally accepted what you delivered? If yes, it’s an invoice payment. If no, it’s contract financing.

The distinction matters because Prompt Payment Act protections, including the automatic interest penalty for late payment, only attach to invoice payments. Progress payments and other pre-acceptance disbursements sit outside that regime.

Getting Paid After Acceptance

Once the government accepts your supplies or services, Subpart 32.9 controls the clock. Payment is generally due 30 days after the designated billing office receives a proper invoice, or 30 days after acceptance, whichever comes later.³

When the government misses that due date, the payment office pays an interest penalty automatically. You don’t have to request it. Four conditions must line up: the billing office received a proper invoice, the government processed a receiving report with no disputes over quantity or quality, the amount is not subject to further settlement, and the payment office paid late.³ The Treasury Department sets the Prompt Payment interest rate every six months; for the first half of 2026 it was 4.125% per year.⁴ A temporary lack of funds is not a valid excuse for the government to skip the penalty.

If the payment office pays the overdue invoice but fails to pay the interest penalty itself within 10 days, you can demand an additional penalty by submitting a written request no later than 40 days after the invoice was paid.³ The government also owes a penalty if it improperly takes an early-payment discount, running from the day after the discount period ends through the day you actually receive payment.

What Counts as a Proper Invoice

None of these protections start running until the government has a proper invoice in hand, so this is the single most controllable factor in how fast you get paid. Under FAR 32.905, a proper invoice must contain:

Your name, address, and taxpayer identification number if agency procedures require it
Invoice date, invoice number, and the contract or order number, including the line item number
A description of what you delivered or performed, with quantity, unit of measure, unit price, and extended price
Shipment number, date of shipment, and any discount-for-prompt-payment terms
The name and address of the official to whom payment should be sent, matching the contract or a valid assignment notice
A contact person with title, phone number, and mailing address for questions about deficiencies
EFT banking information if agency procedures call for it on the invoice⁵

If anything required is missing, the billing office must return the invoice within 7 days with an explanation. If the government fails to notify you within that window, the payment due date is adjusted in your favor for purposes of calculating any interest penalty.⁵

Progress Payments Based on Costs

For fixed-price contracts involving non-commercial items, progress payments based on costs are the most common financing tool. Under Subpart 32.5, the government reimburses a percentage of your allowable, allocable costs as you incur them, rather than making you wait until delivery. The customary rate is 80% of total costs for large businesses and 85% for small businesses.⁶

The government recovers these payments through liquidation, meaning deductions from the amounts owed to you when it accepts completed contract items. This subpart does not apply to cost-reimbursement contracts, which have their own payment mechanisms, or to construction and shipbuilding contracts that use percentage-of-completion payments.⁶

A contracting officer can approve an unusual progress payment at a higher rate, but only when three conditions are met: the contract requires large pre-delivery spending relative to both the contract price and your working capital, you’ve documented that private financing and guaranteed loans won’t cover the gap, and the head of the contracting activity or a designee signs off. The approved rate should be the minimum needed to close the shortfall.⁷

Performance-Based Payments

Performance-based payments are the government’s preferred financing method for non-commercial contracts, provided the contracting officer finds them practical and you agree.⁸ Instead of reimbursing a percentage of accumulated costs, the government ties each payment to a specific, measurable event: completing a design review, passing a qualification test, delivering a prototype.⁹

The practical difference is where the risk sits. With progress payments, you get paid as costs accumulate whether or not you’re on track to deliver. With performance-based payments, you only get paid when you can show something was accomplished. Contractors with strong project management and predictable milestone schedules often prefer performance-based payments because hitting milestones early accelerates cash flow.

Financing for Commercial Products and Services

Subpart 32.2 takes a different starting position. The default expectation for commercial contracts is that you finance your own work, the way you would in any commercial sale. The contracting officer can include financing terms only if they’re customary in the commercial marketplace and serve the government’s interest.¹⁰

Two forms are available. Commercial interim payments go out after you’ve done some work but before acceptance of the final deliverable. Commercial advance payments go out before any work begins, and the total of all advance payments cannot exceed 15% of the contract price.¹⁰ Either form requires a contract price above the simplified acquisition threshold, currently $350,000.¹¹

When the government finances a commercial contract, it takes security. The value must be at least equal to the maximum unliquidated financing at any point during performance, and it can be adjusted as the contract progresses. Acceptable forms include your own balance sheet if it’s strong enough, an irrevocable letter of credit from a federally insured institution, a surety bond, a corporate guarantee, title to identified assets, and a paramount lien on work in process, plant, or inventory. The paramount lien is unusually powerful: it takes priority over all other liens and becomes effective on the first payment without the government having to file anything.¹²

Assigning Payments to a Lender

If you need external working capital, the Assignment of Claims Act lets you assign the right to receive future contract payments to a bank, trust company, or other financing institution. Subpart 32.8 implements the process.¹³ The lender takes your contract receivables as collateral; you get cash without waiting on the payment cycle.

The contract must not prohibit assignment, and you have to send written notice, along with a copy of the assignment instrument, to the contracting officer, the surety on any applicable bond, and the disbursing officer named in the contract. Once notice is on file, the government pays your lender directly.¹³

The provision that makes this arrangement workable for lenders is the no-setoff commitment. When the contract includes it, the government cannot reduce payments to the lender to satisfy your unrelated debts, including independent liabilities to the government, renegotiation obligations, fines, most penalties, and tax or social security withholding issues.¹³ Without it, the lender would inherit your entire government debt exposure as a risk.

Electronic Funds Transfer Is the Default

The government must make contract payments by EFT unless a narrow exception applies. Your contract will include an EFT clause, and you’ll need banking information on file, typically through the System for Award Management. The exceptions cover payments received outside the United States and Puerto Rico, foreign-currency contracts, classified contracts where EFT would compromise security, contracts awarded by deployed contracting officers during military operations or by any contracting officer during emergency operations where EFT isn’t feasible, situations where the agency doesn’t expect to make more than one payment to the same recipient within a year, urgent or sole-source needs, and temporary outages at the payment office.¹⁴

For a new contractor, getting your routing and account numbers right in SAM before the first invoice is one of those steps that can delay payment by weeks if it’s wrong.

When You Owe the Government

Part 32 also handles the reverse direction. When an overpayment, price adjustment, or other event creates a contract debt, the government issues a formal demand for payment. If the debt arises from a specific clause, such as a price reduction for defective cost or pricing data or a Cost Accounting Standards adjustment, interest runs from the date and at the rate the clause specifies.¹⁵

For every other contract debt, you have 30 days from the demand letter to pay. After that, interest accrues at the rate the Secretary of the Treasury sets under 41 U.S.C. 7109, recalculated every six months until the balance is cleared.¹⁵ Unresolved debts can affect your eligibility for future contracts.

Contracts That Depend on Funding

A contracting officer can start a contract action chargeable to the next fiscal year’s funds before those funds are available, but the contract must include a clause conditioning performance on the availability of funds. This authority applies only to operation and maintenance and continuing services, such as rentals, utilities, and supply items not financed by stock funds, that are necessary for normal operations and for which Congress has consistently appropriated funds in prior years.¹⁶

The limitation to watch: the government cannot accept your deliverables until the contracting officer confirms in writing that funds are available.¹⁶ If you begin work and funding falls through, you may have performed work the government can’t pay for. That risk is a good reason to track continuing resolution debates when your contract sits in the early months of a new fiscal year.

1
Acquisition.GOV. 48 CFR 32.000 – Scope of Part
2
Acquisition.GOV. FAR Part 32 – Contract Financing
3
Acquisition.GOV. FAR Subpart 32.9 – Prompt Payment
4
Federal Register. Prompt Payment Interest Rate; Contract Disputes Act
5
Acquisition.GOV. 32.905 Payment Documentation and Process
6
Acquisition.GOV. FAR Subpart 32.5 – Progress Payments Based on Costs
7
Acquisition.GOV. Unusual Progress Payments
8
Acquisition.GOV. 32.1001 Policy
9
Acquisition.GOV. FAR Subpart 32.10 – Performance-Based Payments
10
Acquisition.GOV. FAR Subpart 32.2 – Commercial Product and Commercial Service Purchase Financing
11
Federal Register. Inflation Adjustment of Acquisition-Related Thresholds
12
Acquisition.GOV. 32.202-4 Security for Government Financing
13
Acquisition.GOV. FAR Subpart 32.8 – Assignment of Claims
14
Acquisition.GOV. 32.1103 Applicability
15
Acquisition.GOV. 32.604 Demand for Payment
16
Acquisition.GOV. 32.703-2 Contracts Conditioned Upon Availability of Funds