What Are Federal Vendor Payments and How Do They Work?

Federal vendor payments are the disbursements the U.S. government sends to businesses, nonprofits, universities, and independent contractors that supply goods or services under federal contracts, grants, or other agreements. The Bureau of the Fiscal Service, part of the U.S. Treasury, moves the money electronically after the contracting agency accepts a proper invoice. Since September 30, 2025, paper checks are effectively off the table for vendor payments, so being enrolled for electronic funds transfer is now a prerequisite for getting paid at all.¹

Register in SAM.gov Before You Can Be Paid

Every vendor has to register in the System for Award Management (SAM.gov) before a federal agency can send a payment. Registration is free. You provide your legal business name, physical address, taxpayer identification number, and the bank account details for electronic funds transfer.² SAM.gov assigns your entity a Unique Entity Identifier (UEI), which replaced the older DUNS number. If you only need a UEI without full registration, such as for subaward reporting, you can request one by supplying just your legal name and address.³

Registration usually takes up to 10 business days to activate, and you must renew it every 365 days.³ A lapsed registration is one of the fastest ways to freeze your own payment: agencies cannot disburse to an inactive SAM record, and reactivation is not instant.

How the Money Moves

Federal law has required electronic funds transfer for nearly all federal payments since 1999.⁴ Vendor payments typically travel through the Automated Clearing House (ACH) network, the same rails as payroll direct deposit. A March 2025 executive order tightened this further by directing Treasury to stop issuing paper checks for federal disbursements, including vendor payments, effective September 30, 2025.¹

Narrow exceptions remain for individuals without access to banking services, certain emergency payments, and situations involving national security or law enforcement where electronic methods are impractical.¹ A typical vendor selling goods or services will not fall into any of them. The practical takeaway: the bank account on file in SAM.gov needs to be correct, current, and yours.

Submitting an Invoice That Will Actually Get Paid

After you deliver, you invoice the contracting agency. Many agencies use the Invoice Processing Platform (IPP), a free web-based system run by the Bureau of the Fiscal Service that carries a transaction from purchase order through payment notification.⁵ Through IPP you submit invoices electronically, track status, and get confirmation when payment goes out. Not every agency uses IPP. Some run their own financial systems, and your contract will tell you where and how to submit.

A proper invoice needs your name and address, the contract or order number, a description of what you delivered, quantities, unit prices, the total amount due, and your payment terms. Miss any required item and the agency will bounce the invoice back. The payment clock does not start until the agency has a corrected version in hand.⁶

When You Should Expect the Money: The Prompt Payment Act

The Prompt Payment Act sets the timeline. Agencies must pay within 30 days of receiving a proper invoice or within 30 days of accepting the goods or services, whichever is later.⁶ Perishables move faster. Meat and poultry must be paid within 7 days, and dairy and other perishable agricultural commodities within 10.

Small business prime contractors get better treatment. Under a class deviation that remains in effect, agencies aim to pay small businesses within 15 days of a proper invoice, to the fullest extent permitted by law.⁷ Prime contractors that subcontract with small businesses can qualify for accelerated payment too, provided they agree to pass the faster payment through to the subcontractor.

What Late Payment Costs the Agency

Miss the deadline and interest starts running automatically. The agency owes the penalty without the vendor having to ask for it.⁸ Interest accrues from the day after payment was due until the day it is made, and any interest still unpaid after 30 days rolls into the principal, so the penalty compounds.

Treasury sets the rate and republishes it in the Federal Register every six months. For January 1 through June 30, 2026, the Prompt Payment interest rate is 4.125 percent per year.⁹ The minimum penalty is $1.00; below that, the agency owes nothing. Cash-flow trouble at the agency is not a defense. The statute says explicitly that unavailability of funds does not relieve the obligation to pay interest.⁸

When Your Payment Gets Intercepted

If your business owes a delinquent debt to a federal or state agency, the government can grab your vendor payment before it reaches your account. That happens through the Treasury Offset Program (TOP), which matches outgoing federal payments against a database of delinquent debts.¹⁰ Under 31 U.S.C. § 3716, vendor payments are subject to offset for delinquent federal tax debts, non-tax debts owed to the federal government and states, and delinquent child support.¹¹

The offset can be partial or total, depending on the balance owed. In fiscal year 2024, TOP recovered more than $3.8 billion in delinquent debts across all payment types.¹⁰ If a payment is offset, the notice you receive identifies the debt and the creditor agency that referred it. Resolving the underlying obligation is the only way to stop future offsets.

Tax Reporting and Backup Withholding

Getting paid by the federal government creates tax reporting obligations. Agencies report payments to the IRS, and starting with tax year 2026 the reporting threshold for most information returns rises from $600 to $2,000, with inflation adjustments beginning in 2027.¹² If your total payments from an agency meet the threshold, expect a 1099.

Vendors that fail to provide a correct taxpayer identification number in SAM.gov face backup withholding at 24 percent. The agency withholds 24 percent of each payment and sends it to the IRS. You can recover the withheld amount when you file, but the cash-flow hit in the meantime can hurt, especially for smaller businesses. Keeping your TIN current in SAM.gov is the simplest way to avoid it.

When You Disagree With What You Were Paid

Most payment issues resolve informally: a rejected invoice that needs a correction, a missing receipt, a question about whether what you delivered matched the contract. A phone call or email to the contracting officer usually handles it. When a real dispute over what the government owes takes shape, the Contract Disputes Act sets the process.

You must submit a written claim to the contracting officer within six years of when the claim first arose.¹³ For claims of $100,000 or less, the contracting officer must issue a decision within 60 days. Larger claims get a reasonable time, and you can request a specific timeline. If the decision goes against you, you can appeal to the relevant board of contract appeals or file suit in the U.S. Court of Federal Claims. The six-year clock is firm. Sitting on a disputed invoice for years without filing a formal claim is a mistake you cannot undo.

1
The White House. Modernizing Payments To and From Americas Bank Account
2
Acquisition.GOV. Federal Acquisition Regulation 52.204-7 – System for Award Management
3
SAM.gov. Get Started with Registration and the Unique Entity ID
4
GovInfo. 31 USC 3332 – Required Direct Deposit
5
Invoice Processing Platform. Invoice Processing Platform
6
Acquisition.GOV. FAR 52.232-25 – Prompt Payment
7
Acquisition.GOV. Class Deviation 2020-02 – Accelerated Payments to Small Business
8
Office of the Law Revision Counsel. 31 USC 3902 – Interest Penalties
9
Bureau of the Fiscal Service. Prompt Payment
10
Bureau of the Fiscal Service. Treasury Offset Program
11
USPS. Treasury Offset Program
12
Internal Revenue Service. 2026 Publication 1099 – General Instructions for Certain Information Returns
13
Office of the Law Revision Counsel. 41 USC 7103 – Decision by Contracting Officer