Wednesday, July 9, 2014

What is a "Proper Invoice"?

The term "proper invoice" has very specific meaning in the Federal Acquisition Regulations (FAR). If you perform a search on that term within FAR, you'll find 44 instances where it is used. Here are some examples:
The ordering office shall make payments for supplies or services ... within 30 days after shipment or after receipt of a proper invoice or voucher (FAR 8.709).
Regarding payment due dates, the Government must pay by "The 30th day after the designated billing office receives a proper invoice from the contractor" (FAR 32.904).
For purposes of computing late payment interest penalties that may apply, the due date for making interim payments on cost-reimbursement contracts for services is 30 days after the date of a receipt of a proper invoice (FAR 32.904).
Further, the Government agrees to pay to the Contractor or its assignee, upon presentation of a proper invoice... (FAR 49.603).
It seems like every contractor has had, at some time in their, an invoice rejected because of missing information. The invoice (or voucher, or payment request) was not a "proper invoice". Disbursing offices are not always consistent in their rejections. Some offices might reject invoices that are perfectly acceptable by others. Also, disbursing office personnel are not always consistent in their approach to reviewing invoices. Some will reject out of hand, any invoice that does not have the requisite minimum content. Some disbursing office personnel will call for the missing information and not reject voucher. Sometimes vouchers are rejected as improper and it is left to the contractor to guess or figure out what data is missing. Sometimes, rejected vouchers are annotated to show what additional information needs to be provided.

Whatever the case, rejected invoices are bad. They negatively impact a contractor's cash flow. They cause the Accounts Receivable department to do additional work which takes time away from their other duties. We read somewhere that it costs companies an average of $27 to produce an invoice but it costs nearly double that to "fix" an invoice. The former is probably an automated process while the latter requires a lot of manual effort.

FAR does not leave anyone guessing what a "proper invoice" needs. In FAR 32.905, lists the items that must be present on an invoice:

  1. Name and address of the contractor
  2. Invoice date and invoice number (contractors should date invoices as close as possible to the date of mailing or transmission).
  3. Contract number or other authorization for supplies delivered or services performed (including order number and contract line item number).
  4. Description, quantity, unit of measure, unit price, and extended price of supplies delivered or services performed.
  5. Shipping and payment items (e.g. shipment number and date of shipment discount for prompt payment terms), bill of lading number and weight of shipment will be shown for shipments on Government bills of lading.
  6. Name and address of contractor official to whom payment is to be sent (must be the same as that in the contract or in a proper notice of assignment).
  7. Name (where practicable), title, phone number, and mailing address of person to notify in the event of a defective invoice.
  8. Taxpayer Identification Number (TIN). The contractor must include its TIN on the invoice only if required by agency procedures.
  9. Electronic funds transfer (EFT) banking information.
  10. Any other information or documentation required by the contract.
A couple of notes. First, EFT banking information is often not required any longer as this information is already included in SAM (System for Award Management). All Government vendors and contractors must be registered in SAM before they're even awarded a contract. Secondly, these minimum requirements for a proper invoice does not apply to interim payments on cost reimbursement contracts for services. Those have different criteria.

Invoices can be rejected for other reasons than the foregoing (e.g. items damaged or didn't meet spec) but they cannot be rejected because as "improper" if they contain the requisite information.

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