More states Put in Prompt Payment Laws, Impacting Early Pay Solutions

While SupplierPay from the White House gets all the press, U.S. states like Texas, Maryland and Massachusetts have implemented prompt pay laws. In the case of Texas, their prompt payment law sets when some types of payments are due. In Texas, a state agency’s payment is due on the 30th day after the latest of:

  • The date the agency receives the goods under the contract,
  • The date the vendor completes performing its services for the agency, or
  • The date the agency receives an invoice for the goods or services.

The Texas process for suppliers to get paid include these steps:

  • The vendor acquires a Texas ID number that the state uses to track payments
  • The vendor provides goods or services to a state agency and submits an invoice
  • The agency uses the invoice to prepare and submit a voucher to USAS that includes where the payment should be sent based on the vendor’s payment options
  • The Fiscal Management Division pays the bill according to state law
  • Vendors can readily track payment information

Here is an example from the web site:

A state agency orders and receives 50 chairs that cost $125 each. The chairs are received on Jan 3. The state agency receives a correct invoice for all 50 chairs on Jan. 10. The payment is legally due on Feb. 9, which is 30 days after the date that the agency received the invoice. Since the invoice is over $5,000 ($6,250) and no discount for early payment is offered, the agency may not pay for the chairs until Feb. 9.

The prompt payment law also says that interest is due to a vendor for goods and services payments that are late. Interest starts accruing the first day that the payment is late. The interest rate the state pays is calculated on an annual basis. The interest calculation is one percentage point higher than the prime rate published in The Wall Street Journal on the first business day of July. Recall the state of Illinois must pay a 1 percent penalty for invoices not paid after 90 days.  See Supply Chain Finance finds unlikely Anchors - State Governments

So what is the impact on early pay vendors going after State business?  TFM sees several issues:

  1. If suppliers are paid so fast by the states, the value of early pay isn’t all that great to sign up suppliers to discount invoices at 2 percent because they get paid quickly.
  2. The value proposition to sell solutions now must be based on efficiency - eInvoicing, workflow and visibility.
  3. Biggest obstacle with government payments is not if you will get paid, it is compliance with all the rules. Different agencies will have different rules. So if these early pay solutions can provide quicker resolution to problems that value proposition may become greater than early pay.

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