Public sector customers pay reliably, on terms, once the paperwork is right. The difficulty is that the paperwork has to be exactly right, and a small mismatch sends an invoice back to the start of the process.
How public sector invoicing works
Work is authorised by a contract, often with a purchase order or a call up against a standing offer. When the goods or services are delivered, the buyer records receipt. The invoice then has to reference the right documents and match the contract wording before it can be processed.
Many public bodies route invoices through a portal or a central payment office. That adds a step and a set of submission rules. An invoice sent to the wrong inbox, or one that omits a mandatory reference, is treated as not received.
Why payment takes what it takes
- Receipt has to be recorded before an invoice can be approved.
- Invoices are checked against the contract, line by line.
- Submission channels vary between departments and agencies.
- Approvals pass through more than one person.
- Contract terms on assignment or set off may need to be considered.
How factoring is used
A contractor sells an invoice once the work has been received and the invoice has been accepted for processing. Because the customer's ability to pay is not in doubt, the review concentrates on documentation and on the contract terms.
Under a notification arrangement the paying office is told to settle with the provider, and the provider takes over follow up. Where a contract requires consent to assignment, that has to be arranged before the invoice is sold.
Sector cautions
The first caution is the contract itself. Some public contracts restrict assignment, some require notice, and some include set off rights that allow the buyer to deduct amounts owed elsewhere. Each of those affects whether an invoice can be sold and what it is worth.
The second is the record of receipt. A contractor whose work has not been formally accepted has an invoice but not yet a receivable. Chasing acceptance is the contractor's job, not the provider's.
The third is holdback on construction work, which is released after certification of completion and is not collectable on the normal invoice date. A provider will usually separate it from the rest of the claim.
Questions to ask a provider
- Do you buy invoices from federal, provincial and municipal buyers?
- What evidence of receipt do you require?
- How do you handle a contract that requires consent to assignment?
- Are holdbacks on construction claims treated separately?
- Is the arrangement recourse or non-recourse?
Keeping the record straight
Public buyers keep records, and those records are what any later review will rely on. A contractor that can produce the contract, the authorisation, the delivery record and the invoice, with all four matching, is in a stronger position with the buyer and with a funding provider. The discipline costs little and prevents most of the delays described above.
Related guides
City context sits in the Ottawa guide. For the structure read recourse and non-recourse factoring, and for the process how invoice factoring works. Contractors working on public construction may also want the construction guide.