Prompt Payment Tool Kit for Small Business Advocates

Purpose:
To provide valuable resource information for training Advocates and executive management on Prompt Payment requirements.

Contact:
Department of General Services
Procurement Division
Office of Small Business and DVBE Services
Yolanda Tutt
yolanda.tutt@dgs.ca.gov 

Executive Summary of Prompt Payment Issue

In Fiscal Year 2005 - 2006, the state paid $2.3 million in late payment interest penalties to contractors, pursuant to the California Prompt Payment Act (California Government Code Section 927 et seq.).

Many of these contractors are small businesses (SB) and disabled veteran business enterprises (DVBE) that do not have the financial reserves to buffer late payments. An Administrative directive to increase state contracting with California SB/DVBE firms has heightened state executive management's attention to this prompt payment issue.

According to Department of General Services (DGS) statistics, the biggest cause for payment delays is that "end users" who receive goods and services do not approve and forward invoices to accounting offices in a timely manner. The Prompt Payment Act (copy attached) requires payment of an undisputed invoice within 45 days of receipt at the location identified in the purchase document as "billed to" or "invoice submitted to" for payment. If the invoice is not date-stamped upon receipt, the 45-day cycle begins on the date the contractor issued/prepared the invoice. Still, many end users delay this administrative work in lieu of their program work, although the firms, with which they have contracted for goods and services to help accomplish their goals, have delivered on time and in good faith.

With executive management attentiveness, invoices can be processed timely and fewer contractors will become frustrated with the bureaucracy.  The state will save money, and more quality businesses will want to become state partners.

1. Summary and Directory of Prompt Payment Act
   This summary of California Government Code, Section 927, is a reference that answers FAQ's about what is specifically required of agencies regarding payments to contractors (/promptpay/)
2. Contractor FAQ
   In addition to the Summary and the Directory (/promptpay/). Use this section to assist contractors who request help navigating state invoice and payment processes, and to clarify proper expectations for state payment timeliness.
3. State Department FAQ
   In addition to the Summary (/promptpay/). Use this section to provide information to departmental staff about the Act, and to clarify requirements of the law and the Legislature's intentions.
4. Sample Invoice Process Flow
   This is an "at a glance" look at the typical state invoice payment process.
5. Excerpt from the State Administrative Manual Chapter 8400, Disbursements, Penalty Calculation Process
   This is a copy of the SAM section that instructs state departments on how to calculate late payment penalty amounts. An example calculation is included.
6. California Government Code Section 927 , The California Prompt Payment Act
   Contains full text of the law.

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