How to Make Payroll While Waiting on Government Payment

You won the award, staffed it, and the first payroll on it is bigger than anything you have run before. The agency has not paid you and will not for weeks. Payroll is due Friday.

You cover that stretch by funding work you have already performed. Which facility fits depends on how far that work has moved through billing. Before you invoice, payroll funding draws against the hours worked. After you invoice, invoice factoring advances against the invoice. Where payroll is one cost among several on the award, a contract line of credit covers the whole set.

Plan on carrying that cost for about two months. Billing monthly on net 30 as a prime, you fund roughly 60 days of costs before the first payment lands. As a sub on net 45, roughly 75 days.

Why does payroll run ahead of government payment?

Payroll runs ahead of payment because the two sit on different clocks. You pay your people weekly, every two weeks or twice a month. The agency pays on terms, usually net 30 for a prime and net 45 for a sub billing a prime.

Those terms do not start when the work is done. They start when you invoice, and you cannot invoice until the billing period closes. So what you carry is the billing period plus the terms, every cycle, for the life of the contract.

None of that means something has gone wrong. An agency paying on day 30 is the system working as designed.

Growth is what makes the gap bite. Your existing contracts cover their own payroll, because their receipts are already arriving. A new award’s payroll has nothing behind it yet. If the new work runs at three times your current rate, so does the payroll you carry before its first dollar arrives.

How many payrolls do I need to cover before the first payment?

Count pay runs rather than days, because a pay run is the thing you actually have to fund. The table assumes you bill monthly and invoice on time and correctly. A late or returned invoice pushes every figure out.

How often you pay	Prime on net 30 (about 60 days of costs)	Sub on net 45 (about 75 days of costs)
Weekly	About 9 payrolls	About 11 payrolls
Every two weeks	4 or 5 payrolls	5 or 6 payrolls
Twice a month	About 4 payrolls	About 5 payrolls

Then multiply those pay runs by your fully loaded cost per run. Loaded means wages plus payroll taxes, benefits and fringe, which on a services award runs well above the headline wage. Size against the loaded number or you will be short on the first run.

A worked example

A contractor already performing on three task orders wins a fourth that adds 45 people. Loaded cost on the new roster is about $3,800 per person per two-week pay period, so the fourth task order adds $171,000 to every payroll.

This contractor is the prime, billing monthly on net 30. That puts 4 or 5 payrolls between the first day of work and the first payment, or roughly $684,000 to $855,000 on labor alone. The three existing task orders are fine, because their receipts are already arriving. Only the new one needs funding, and it needs it for about two months rather than for the life of the contract. Once the first payment lands, each month’s receipts start covering the payroll that earned them.

So the number to finance is the peak before first payment, not the contract value. Payroll is only part of that peak. The costs that land before you can invoice at all sit in the mobilization budget, which is the other half of the calculation.

Which funding fits where my invoice is?

What decides it is how far the work has moved through billing on the day payroll is due.

Where you are when payroll is due	What fits	What it draws against
Hiring and badging, nothing billable yet	Mobilization funding	Your dated mobilization budget
People working, billing period not closed	Payroll funding	Hours already worked, before invoicing
Invoice submitted, waiting on the agency	Invoice factoring	The approved invoice, typically advancing 85 to 90 percent
Payroll is one of several costs on the award	Contract line of credit	The contracts you hold, drawn against revenue earned, billed or not

Factoring reaches only money you have already billed. On a labor-heavy award billed monthly, most of the gap sits before the invoice exists. That is why contractors scaling this kind of work usually land on payroll funding or a contract line instead. The comparison of those two works through how to choose.

Why is my bank line not enough for the new payroll?

A bank line is usually sized on what you billed last year. That works for a business whose revenue moves in steps of 10 or 20 percent. It does not stretch to a contract you have to perform at several times last year’s rate.

We read the financials too, and they matter. They show how the company has been run and whether it can perform. What they cannot show is capacity, because capacity sits in the contracts you hold. So your financial history underwrites the facility, and the awards in hand set its size. That is what lets the facility grow as you win more work.

None of this makes the bank line the wrong product. Many contractors keep it on the existing book and add contract-based funding alongside it, with an intercreditor agreement setting out who holds what. If the bank line is doing its job, leave it alone.

Can the agency be made to pay faster?

Not in a way that moves your pay date. The Prompt Payment Act sets when a federal payment is due and requires the agency to pay interest when it is late. Interest compensates you after the fact. It does not put cash in the account on Friday.

What you do control is the invoice. Treasury’s prompt payment guidance turns on a proper one, meaning an invoice the agency can approve without sending it back. Get that wrong and the return restarts the payment clock while two more payrolls run. Get it right and submit it the day the billing period closes, with timesheets approved and every field complete. That is the one part of the delay you can remove.

The calendar can still move the date on you. A payment due on a weekend or a federal holiday moves to the next business day. Fund against that business day, not the one the invoice implies.

What makes the payroll gap longer than planned?

• Headcount ramps faster than the staffing plan. The most common reason a facility is outgrown in month two. Where the award calls for a fast phase-in, size for the ramp, not the steady state.
• The billing period closes late. Timesheet approval runs long, a subcontractor invoices late, a holiday falls at month end. Each one pushes the invoice out while payroll stays exactly where it was.
• An invoice comes back. A government invoice returned for documentation restarts the payment clock. The payrolls in that window are still yours.
• Burden is left out. Sizing against wages instead of loaded cost leaves you short on every run.
• Funding is arranged after the ramp starts. Every option here is easier to put in place at award than in the week a payroll is due.

Common questions

Is payroll funding a loan? It is a facility that advances against work your people have already performed under an active award. It clears as the related invoices are paid, and it runs with your pay cycle rather than being re-underwritten each period, so you are not applying again before every payroll.

Will my employees or the agency know? Your employees see nothing different, because payroll runs as it always has. Where payment is directed to the funder, the agency is notified through an assignment of claims. The notice is routine and does not affect how your performance is evaluated.

Can I use invoice factoring to make payroll? Yes, once the invoice has gone out. Factoring advances against a billed invoice, so it covers the part of the gap that comes after billing. It cannot reach payroll for work in a billing period that has not closed yet, which on a monthly cycle is usually the larger part.

Does this work if I am a subcontractor? Yes. Funding is based on the subcontract and on the prime’s payment history with you rather than on the agency directly. Expect to carry about 75 days of costs on net 45 rather than about 60 on net 30. Size for the extra pay runs.

What if the agency pays late? That is the situation the funding is sized for. The facility is set against the gap you actually carry, including a returned invoice, rather than against the earliest date payment could arrive.

How quickly can payroll funding be in place? Paperwork sets the pace, not underwriting. What is needed is the award documents, current financials, and an assignment of claims where payment is being redirected. The assignment is the step most likely to add weeks, so start it early.

Do you look at my financial history? Yes. It tells us how the company has been managed and whether it is capable of performing. The size of the facility comes from the contracts you hold. Tell us about the award and your pay cycle and we will tell you which structure fits.