Payer-Side Scoring: why receivables underwriting asks the wrong question

1.The wrong question

Invoice factoring and receivables finance are usually described as asset-based: the asset is the invoice, and the invoice is what secures the advance. In practice, underwriting rarely behaves that way. The applicant submits financial statements, bank data, revenue history, sometimes a personal guarantee, and the file is assessed the way a small-business loan is assessed — against the borrower's capacity to repay.

That is a category error, and it is expensive on both sides. The advance is retired when the invoice is paid. The invoice is paid by the customer. The borrower's balance sheet influences recovery only in the failure case, after the primary repayment source has already not performed. Underwriting the borrower prices the secondary source and leaves the primary one unpriced.

The variable that actually determines the economics is when the payer pays. Advance rate, reserve, fee accrual, and recourse exposure are all functions of elapsed days. Almost nobody prices that variable directly, because for commercial payers it is genuinely hard: a private company's accounts-payable behaviour is unobservable from outside, governed by internal policy, and disclosed to nobody.

Federal receivables are different in a way that is worth stating precisely.

2.The statutory clock

Congress passed the Prompt Payment Act in 1982 to require federal agencies to pay on time and to pay interest when they do not. The operating rules live at 31 U.S.C. §§ 3901–3907 and in OMB's implementing regulation at 5 CFR Part 1315, with the contract clauses at FAR 52.232-25 and, for construction, FAR 52.232-27.

Four features of that framework matter for modelling.

The due date is defined, not negotiated

Payment is due 30 days after the later of receipt of a proper invoice or acceptance of the goods or services — 14 days for construction progress payments. The due date is a property of the contract and the statute, not of the vendor's relationship with the contracting office.

Acceptance happens whether or not anyone accepts

Under 5 CFR 1315.4, acceptance is deemed to occur constructively on the seventh day after delivery, unless the contract specifies a longer acceptance period or actual acceptance occurs sooner. This matters because it puts a ceiling on one of the two components of the due date. An agency cannot extend payment indefinitely by declining to act — silence resolves to acceptance.

A defective invoice must be returned quickly

When an invoice is improper, the agency must return it as soon as practicable and no later than seven days after receipt, identifying every defect and every reason it is being returned. If the agency misses that seven-day window, the days allowed for payment of the corrected invoice are reduced by the overrun, and interest is computed against the adjusted date.

Interest accrues automatically

The interest penalty is paid without any request from the contractor. It is not a claim to be filed; it is a consequence attached to the missed date.

3.Four mechanisms that move it

The 30-day figure is where most discussion of the Prompt Payment Act stops, and it is where the useful analysis begins. Contractors routinely wait far longer than 30 days, and the statute is not being violated in most of those cases. The clock has simply not started, or has started and been restarted.

There are four distinct mechanisms, and they behave differently:

1. The invoice was never proper. The payment period begins when the agency receives an invoice containing everything required. A defect returns the invoice and restarts the period on the corrected version. Documentation completeness is therefore not an administrative nicety — it is the variable that determines whether the clock is running at all.
2. The acceptance period was extended by contract. A contracting officer may specify a longer constructive acceptance period where inspection or testing genuinely requires it. Where that clause is present, the due date moves with it, lawfully and predictably.
3. The payment is contingent on someone else. On a subcontract, the prime's own receipt governs. Pay-when-paid and pass-through structures inherit the federal timeline and add a second party's processing to it.
4. The amount is disputed or subject to offset. A contested amount is outside the prompt-payment framework entirely until it is resolved.

Each mechanism is visible in the file. A contract clause can be read; an invoice can be checked for completeness against the proper-invoice elements; a pay-when-paid structure is disclosed in the subcontract; a dispute is known to the applicant. None of this requires the borrower's financial statements, and none of it is captured by them.

4.Lateness has a published price

The Treasury Secretary sets the Prompt Payment interest rate semiannually and publishes it in the Federal Register, effective each January 1 and July 1. It is set by reference in 31 U.S.C. § 3902(a) to the rate established under 41 U.S.C. § 7109.

Source: Bureau of the Fiscal Service, Prompt Payment interest rates. The July–December 2026 rate was published at 4-3/4 percent per annum (Federal Register, July 9, 2026).

Two observations follow. First, the rate is frequently confused with the Current Value of Funds Rate, which is set annually for a different purpose — 4.00% for calendar 2026 — and substituting one for the other produces a plausible-looking number that is wrong. Second, and more importantly for underwriting: a late federal receivable does not simply age. It accrues a statutory penalty at a published rate, in favour of the holder. That is a materially different risk object from a late commercial invoice, and it is not reflected in pricing that treats all late paper alike.

5.Assignment changes the payee

The Assignment of Claims Act (31 U.S.C. § 3727 and 41 U.S.C. § 6305, implemented at FAR Subpart 32.8) allows a contractor to assign amounts due under a federal contract to a bank, trust company, or other financing institution. Where a valid assignment is filed and the contract contains the no-setoff commitment, payment is directed to the assignee.

For a funder, this is the single largest structural variable in the file. It changes who receives the money, removes the intermediate step where the contractor receives and redirects funds, and narrows the set of events that can divert payment. Two otherwise identical federal invoices — same agency, same amount, same aging — carry materially different risk depending on whether assignment is in place. Borrower-side underwriting does not see this at all.

6.Five inputs

The Payment Certainty Score™ is deliberately small. It reads five variables, all of which are present in a normal receivable file and none of which require the applicant's financial statements:

The output is a 0–1000 score, a tier, an estimated payment window, an indicative advance band, and reason codes attributing every point lost. The reason codes matter more than the score: a file scoring 620 because documentation is incomplete is a file that can be fixed in a day, while a file scoring 620 because of a contingent payment structure cannot be fixed at all. A single number conceals that distinction; the codes surface it.

The score makes no credit decision, and Kayanda takes no credit risk. It is an input a funding partner may use inside its own independent underwriting.

7.What is not yet shown

The gap between the rules and the behaviour is the entire research question, and it is not closable from public data alone. Agency-level payment timing is partially observable — through agency financial reports, Treasury's Invoice Processing Platform, and federal spending disclosures — but the decisive detail is not: the date a specific invoice was deemed proper, the date acceptance occurred, whether a defect was returned within seven days, and the date funds actually settled.

That record exists in only one place, distributed across the contractors who lived it and the funders who financed it. Kayanda is assembling it one scored file at a time, and reporting outcomes back is a first-class operation in the API (POST /api/v1/outcome) rather than an afterthought.

Open call

We are seeking three things, and will share aggregate findings with contributors:

• Funders and factors holding closed federal receivables with invoice, acceptance, and settlement dates — scored retrospectively, reported in aggregate, never identified.
• Contractors willing to report realised payment dates against submitted invoices, including the cases where an invoice was returned as improper.
• Researchers working on procurement payment behaviour, government-supplier working capital, or asset-based lending under statutory payment regimes.

8.Sources

• Prompt Payment Act, 31 U.S.C. §§ 3901–3907 — statutory due dates and interest penalties.
• 31 U.S.C. § 3902(a) — interest rate set by reference to 41 U.S.C. § 7109.
• 5 CFR Part 1315 (OMB) — implementing regulation; § 1315.4 covers receipt of invoice, constructive acceptance, improper-invoice return, and adjusted due dates.
• FAR 52.232-25 (Prompt Payment) and FAR 52.232-27 (Prompt Payment for Construction Contracts); FAR Subpart 32.9.
• Assignment of Claims Act, 31 U.S.C. § 3727 and 41 U.S.C. § 6305; FAR Subpart 32.8.
• U.S. Department of the Treasury, Bureau of the Fiscal Service — Prompt Payment interest rates, and Current Value of Funds Rate (4.00% for calendar year 2026). fiscal.treasury.gov/prompt-payment
• Federal Register, July 9, 2026 — Prompt Payment interest rate; Contract Disputes Act: 4-3/4 percent per annum for July 1 – December 31, 2026.