Billing and invoicing government contracts
A government contractor can be profitable and still run out of cash, because payroll happens every two weeks and the voucher cycle does not. Billing discipline is a controller function, and it moves more cash than almost anything else in the business.
Billing by contract type
| Type | Basis | Timing |
|---|---|---|
| FFP | The contract price, per the payment schedule or on acceptance of a deliverable or milestone. | On the event. Nothing to accumulate. |
| FFP with progress payments | A percentage of incurred cost, per the progress payments clause. | Monthly, from posted cost. |
| T&M | Hours by labor category at contract rates, plus materials and ODC at cost per the contract terms. | Monthly, after labor is distributed. |
| Cost-reimbursement | Allowable incurred cost, indirect at provisional rates, plus fee. Public voucher — SF 1034 with the SF 1035 continuation detail. | Monthly, after close. |
Most DoD invoicing goes through Wide Area Workflow, inside the Procurement Integrated Enterprise Environment. Civilian agencies vary — the Invoice Processing Platform and agency-specific portals are both common. Confirm the destination at award, not at first invoice.
What a cost voucher has to survive
The accounting system criteria require billings that reconcile to the cost accounts, for both current and cumulative amounts claimed. In practice an auditor should be able to:
- Take the current-period cost on the voucher and trace it to posted cost in the general ledger for that period.
- Take cumulative cost claimed since inception and tie it to cumulative posted cost, net of anything deliberately withheld.
- Recompute the indirect amounts from the established provisional rates.
- Confirm no unallowable cost is included.
- Confirm cumulative billing does not exceed the funded value, and that fee is billed per the contract's fee schedule and any withholding provision.
Every voucher prepared outside the accounting system is a reconciliation you will have to perform later, under less favorable conditions.
Shortening the cycle
- Close faster. Cost-type billing cannot precede the close. A company that closes in five business days bills a week and a half sooner than one that closes in fifteen, every month, permanently.
- Bill on a fixed calendar day. Not "after the close," which floats. A day.
- Fix rejections at the cause. Track why vouchers reject and eliminate the top reason each quarter. Rejections restart the payment clock.
- Reconcile subcontractor invoicing to your own. Subcontractor cost you have not received is cost you cannot bill, and a slow sub becomes your cash problem.
- Age unbilled cost by contract. Anything over sixty days needs a named reason and an owner.
- Watch the withholding provisions. Fee withholding on cost contracts, and payment withholding under DFARS 252.242-7005 where a business system has been found inadequate, both reduce what actually arrives.
The working capital arithmetic
Count the days honestly. Cost is incurred through the month. The close takes some number of days. The voucher is submitted, reviewed, and paid. For a contractor with a slow close and an average payment cycle, sixty to seventy-five days between spending a payroll dollar and collecting it is ordinary — and every dollar of growth consumes more of it before it returns any.
That number is the reason fast-growing GovCon companies need a line of credit and a thirteen-week cash forecast, and the reason the close calendar is a cash decision rather than an accounting preference.
Frequently asked
What is an SF 1034?
The public voucher form used to claim payment on cost-reimbursement contracts, with the SF 1035 continuation sheet carrying the cost detail. Many agencies now accept the equivalent through an electronic invoicing portal instead of the paper form.
How long does the government take to pay?
Prompt payment rules generally target thirty days from receipt of a proper invoice, but the clock starts on a proper invoice — a rejected voucher restarts it. The larger variable for most contractors is their own close and submission time, which they control.
Can we bill before the month is closed?
Not on cost-type work, where the voucher has to reconcile to posted cost. FFP milestone billing is independent of the close. T&M billing needs labor distributed, which is part of the close.
What causes vouchers to get rejected?
Most often: cumulative amounts that do not tie, indirect computed at rates other than the established provisional rates, billing beyond funded value, missing supporting detail, or labor categories that do not match the contract. All are preventable at the close.
Related
Provisional billing rates
How provisional rates get set under FAR 42.704, why they need monitoring every month, and how contractors end up owing money back at year end.
Read →Job cost accounting by contract and task order
Accumulating cost by contract, task order, and CLIN so that job cost, the general ledger, and your billings all agree.
Read →Contract types and what they do to your books
FFP, T&M, cost-reimbursement, and IDIQ — what each one changes about revenue, billing, risk, and the records you have to keep.
Read →