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Late fees and Prompt Payment Act interest

Getting paid what you are owed, sooner: interest that federal agencies must add when they pay you late, and late fees you write into your contracts with private customers. It costs nothing to claim, but it only works if your paperwork and terms are in order.

L0 · Free or nearly freeNot a raiseRegulation dependsLast checked: October 20, 2026Something wrong or out of date?
Cost band
L0
Free or nearly free
Speed
Days
Amount
Varies
Term
Until the invoice is paid; federal interest runs for up to a year
Ownership
No shares given up
Security
  • No security

How it works

Federal customers: the Prompt Payment Act. When a federal agency pays a proper invoice late, it must add interest automatically, without you asking.

  • When payment is due: generally the later of 30 days after the agency receives a proper invoice and 30 days after it accepts the goods or services. For working out interest, acceptance is treated as happening 7 days after delivery unless there is a dispute.
  • The rate: set by the Treasury every six months. For July 1 to December 31, 2026, it is 4 3/4% a year. Interest is worked out on a 360-day year, is added to the debt every 30 days for up to a year, and stops after a year or once a Contract Disputes Act claim is filed. Amounts under $1 are not paid.
  • If the interest is not paid: you can demand an extra penalty in writing within 40 days after the invoice is paid, if the interest due was $1 or more and was not paid within 10 days.
  • Financing payments, such as progress payments, are not covered.

Private customers. The Prompt Payment Act covers federal agencies only. With other customers, what you can charge comes from your contract: put the payment terms, any late fee or interest, and the cost of collection in your terms of sale before the work starts, and check what your state's law allows. Federal debt collection rules (the Fair Debt Collection Practices Act and Regulation F) protect consumers, not businesses, so they do not cover a collector chasing a business customer for you.

Early-payment discounts (such as 2% off for paying in 10 days) work the other way: they cost you margin but bring cash in sooner. See supplier trade credit for how they look from the buyer's side.

Upsides and downsides

Upsides

  • Costs nothing, and federal interest is paid without being asked for
  • Clear terms and late fees encourage customers to pay on time
  • Keeps you from borrowing to cover money you are already owed

Downsides

  • Brings in only what you are owed, not new money
  • Federal interest runs only from the due date on a proper invoice
  • With private customers, you can charge only what your contract allows

Risks

  • Pressing customers for late fees can cost you their business
  • Disputes over quality or quantity stop federal interest from running

What it costs

How it is priced
No cost to you; federal interest is added automatically, and private late fees are whatever your contract says
Costs that are easy to miss
  • Time spent getting invoices right, since federal interest runs only on a proper invoice
  • Strain on customer relationships when you charge late fees
  • Fees for a collection agency or lawyer, if you go that far

The interest or fees on what you are owed; it brings in money you are already due, sooner or with interest, not new money.

Paid late by a federal agency? Prompt Payment Act interest: work out the interest it owes

Does it fit?

Could fit when

  • You have a contract with a federal agency
  • Business customers often pay you late

Unlikely to fit when

  • Your customers pay upfront or by card rather than on invoice
  • Your customers pay on time, so there is little to claim

Who can use it

  • Business types: Sole proprietorship, Partnership, LLC, S corporation, C corporation, Benefit corporation, Cooperative, Nonprofit
  • Needs sales (revenue)
  • Only for businesses that sell to other businesses
  • Federal interest: a proper invoice to a federal agency, and goods or services it has accepted
  • Private customers: late fees or interest written into your contract or terms of sale

Am I ready?

What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all own cash and no-cost

Ready

0%

0 of 3 ticked

Next to prepare
  1. Invoices that meet the contract's terms
  2. Payment terms in your contracts
  3. Accounts receivable aging report

Regulation and protections

Regulation depends

Regulators: U.S. Department of the Treasury; Federal Acquisition Regulatory Council (FAR Council).

Who runs it: Federal program.

The Prompt Payment Act and Treasury's rules (5 CFR part 1315) set due dates and interest for federal agencies; the Federal Acquisition Regulation puts them in contract clauses. Late fees with private customers come from your contract and state law.

Types of provider: Federal agencies' payment offices, for Prompt Payment interest; Collection agencies and lawyers, for private customers.

Also consider

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What has changed

No changes since this page was published. It was last checked against its sources on October 20, 2026.

Every change across the site

Sources

  1. Federal Register 2026-13903: Prompt Payment Interest Rate; Contract Disputes Act (4 3/4% for July 1 to December 31, 2026) · checked October 20, 2026
  2. 5 CFR 1315.10: late payment interest penalties · checked October 20, 2026
  3. 48 CFR 32.904 (FAR): determining payment due dates · checked October 20, 2026
  4. 48 CFR 32.907 (FAR): interest penalties · checked October 20, 2026
  5. 12 CFR 1006.2 (Regulation F): definitions, including debt as a consumer obligation · checked October 20, 2026

Something wrong or out of date?

Every fact here comes from a source, and rules and limits change. Email what looks wrong to data@fundladder.uk and, if you can, where you saw the right information. We use your email only to check the correction and reply. Privacy