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Purpose
The Prompt Payment Act encourages expeditious invoice payment to service firms and vendors. It entitles certified small businesses and recognized nonprofit organizations to receive higher interest penalties than non-certified businesses. Typically, small businesses and nonprofit organizations do not have the resources to operate without adequate cash flow. The Act encourages state agencies to pay invoices promptly.
Description
The Prompt Payment Act entitles businesses and recognized nonprofit organizations to collect penalties from state agencies if an undisputed claim is not paid within 45 days of the invoice receipt date.
The Act requires that state agencies automatically calculate and pay the appropriate late payment penalties if they fail to pay properly submitted, undisputed invoices on the date required by the contract; or if a payment date is not specified in the contract, within 45 days of receipt of the invoice. Thirty of the 45 days allowed for vendor invoice processing and payment are allocated to the state agency payment approval process. The remaining 15 days are allocated to the Controller's warrant generation process.
The Act specifies that the Controller shall pay contractors within 15 calendar days of receipt of a correct claim schedule from the state agency. If the Controller fails to make payment within 15 calendar days of receipt of the claim schedule from a state agency, the Controller shall pay applicable penalties out of its own funds. Penalties shall cease to accrue on the date a warrant, in full payment, is issued.
A firm must be a certified small business or recognized by the Office of Small Business and DVBE Certification as a nonprofit organization to be eligible to receive the higher interest penalties through the Prompt Payment Program. The program includes the use of a rubber stamp to alert state departments a firm is a certified small business or recognized nonprofit organization. Rubber stamps are available for a fee. A completed Prompt Payment Stamp Request form and fee payment may be submitted upon small business certification or recognition as a nonprofit organization. Upon receipt of this material, a rubber stamp and instructions are sent.
Changes
Effective January 1, 1999, Assembly Bill 2275 (AB 2275) enacted a new Prompt Payment Act enabling businesses and recognized nonprofit organizations to automatically collect penalties from state agencies if an undisputed invoice is not paid within 45 days of the receipt (30 days at the state agency, 15 days at the State Controller's Office (SCO)). Additionally, the bill specifies that these provisions may not be waived, altered, or limited by a state agency, or a person or business contracting with the state, for contracts entered into on or after January 1, 1999.
Authority
California Government Code, Title I, Division 3.6, Part 3, Chapter 4, Section 927 et. seq.
Report
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