Calculating Purchase Card Invoice Payment Date

• Credit Card Rebate Sheet: Automatically determines whether it is econimically justified to accept a rebate.
• Manual Rebate Formula
  
  

• Also see: Current Value of Funds rate (CVFR)

Introduction

The revised Prompt Pay regulation requires agencies to determine Government-wide commercial purchase card payment dates based on an analysis of the total benefits to the Federal government as a whole. Specifically, agencies are required to compare daily basis points offered by the card issuer with the corresponding daily basis points of the government’s Current Value of Funds (CVF) rate. If the basis points offered by the card issuer are greater than the daily basis points of the CVF rate, the government will maximize savings by paying at the earliest date. If the basis points offered by the card issuer are less than the daily basis points of the CVF rate, the government will minimize costs by paying on the Prompt Payment due date or the date specified in the contract.

Agencies may use the following rebate sheet which automatically calculates the net savings to the government and determines whether the agency should pay early or on the Prompt Payment due date.  Instructions and an example are provided in the spreadsheet.

Spreadsheet ( MS Excel 97 format - 60KB) *You must download this file

Agencies may also choose to use a manual calculation to determine whether to pay early or on the Prompt Payment due date. In order to perform this calculation, agencies must determine the respective basis points offered by the card issuer and of the CVF rate. To obtain daily basis points offered by the card issuer, agencies may refer to their contract with the card issuer. The following formula is used to calculate the average daily basis points of the CVF rate:

(CVF/360)* 100

For example, the daily basis points offered to Agency X by card issuer Y are 1.5 basis points. The agency loses 1.5 basis points in savings for each day they delay paying the card issuer (corresponding to a 1.06% maximum discount rate). At a CVF rate of 6%, the daily basis points of the CVF rate are 1.67 basis points. The government earns 1.67 basis points for each day it delay paying the card issuer. The basis points were calculated using the following formula:

(CVF/360) * 100

(.06/360) * 100 = 1.67

Because 1.67 is greater than 1.5, the agency should pay as close to the payment due date as possible so the government continues to earn interest on its funds. However, if the basis points offered by the card issuer are more than the daily basis points of the current value of funds, the government should pay as early as possible to maximize savings.