Improving the Government's Bill Payment Performance

Gao ID: 115308 May 13, 1981

GAO reviewed the Government's bill payment performance because companies had complained that Federal agencies were slow in paying their bills. GAO analyzed a sample of contractor invoices and responses from contractors to a questionnaire. The review showed that Federal agencies were paying the majority of their invoices on time, and most companies were satisfied with how quickly they were paid. Only 16 percent indicated that they were dissatisfied. Some lengthy delays in payments did occur and were caused both by contractors as well as by Federal agencies. Late payments cost contractors money because of the inflation rate and in terms of additional time and effort spent tracking down unpaid invoices. Some contractors no longer offer prompt payment discounts because they were not effective and were often taken after the discount period had expired. Paperwork processing was the greatest cause of delayed payments. There was a lack of Federal standards establishing when payment was due. Early payment was also a problem as the Government incurred unnecessary interest costs. Improving Federal payment performance would require changes in Federal procurement policy and in agency payment procedures. GAO recommended that Federal agencies eliminate redundant steps in their payment process and make wider use of fast payment procedures when possible. GAO also recommended that payment due date standards be developed and that specific payment terms be included in contracts and purchase orders. GAO called for the continual monitoring of Federal payment performance. Proposed legislation, which would require Federal agencies to pay interest on overdue payments and to take early prompt payment discounts only when payment is timely, would protect contractors. The bill would also provide for congressional oversight by requiring Federal agencies to file an annual report. Interest on late payments could result in an administrative burden and could require extensive redesign of existing payment systems. The best solution for the Government and for the contractors would be to speed up the bill paying process. GAO supports legislation calling for the Federal Government to take early discounts only when payment is made within the specified time for earning the discount. GAO also strongly supports congressional oversight of Federal Government bill payment performance through annual reports from Federal agencies on late payments.

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