On-Account Payment

An on-account payment is a provisional payment released to a contractor or supplier in a government contract based on work completed or materials supplied to date, without waiting for a final reconciled bill. It keeps the contract moving by ensuring the vendor has working capital.

What is an On-Account Payment?

In Indian government procurement, on-account payments are interim disbursements made against certified work or delivered goods before the final account is settled. They are closely related to Running Account Bills (RA bills) in works contracts, but the term is also used more broadly in supply contracts where stage-wise deliveries are made.

On-account payments work as follows:

• Trigger: The contractor or supplier submits a bill for work done or goods delivered and inspected up to a cut-off date.
• Certification: The engineer, stores officer, or project manager certifies the quantity and value of work or supply completed.
• Provisional nature: The payment is made without prejudice to the final settlement; any overpayment identified during final bill reconciliation is recovered.
• Deductions apply: TDS, retention money, advance recoveries, and any liquidated damages are deducted before payment.

On-account payments are distinct from mobilisation advances, which are paid before work begins. They apply to work already executed, making them lower risk for the procuring entity. Suppliers bidding on works or supply contracts published on CPPP or state e-procurement portals should check the contract's payment schedule clause to understand the on-account payment cycle.

Why On-Account Payments matter for Indian government suppliers

On-account payments are critical for contractors executing long-duration contracts, as they prevent the cash-flow gap that would otherwise force contractors to fund months of work from their own reserves. Delayed on-account payments, a common issue in state government departments, directly increase working capital costs. Understanding when and how on-account payments are triggered, including what measurements, certifications, and documents are required, helps suppliers plan submission timelines and reduce payment delays.

Example

A supplier delivering 500 MT of structural steel for a bridge project over six months arranges with the procuring entity for on-account payments after each 100 MT delivery is inspected and accepted. After the third delivery, the supplier submits an on-account bill for 300 MT at INR 60,000 per MT, totalling INR 1.8 crore. The stores officer certifies delivery, TDS of 2 percent (INR 3.6 lakh) is deducted, and a net payment of INR 1.76 crore is released, with the final reconciliation happening after the last delivery.

Frequently Asked Questions

Is an on-account payment the same as an advance payment?

No. An advance payment is paid before work begins, while an on-account payment is for work already completed or goods already delivered. On-account payments carry lower risk for the procuring entity because the service or supply has already been rendered.

Can on-account payments be recovered later?

Yes. On-account payments are provisional. If the final measurement reveals that less work was done or fewer goods were supplied than certified, the overpayment is recovered from the final bill or subsequent on-account bills.

What documents are required for an on-account payment claim?

Typical requirements include a certified Measurement Book (for works) or inspection certificate (for supplies), invoice, TDS declaration, GST invoice in prescribed format, and details of any advance outstanding for recovery.

Do on-account payments apply to consultancy contracts?

Yes, consultancy contracts may include milestone-based on-account payments tied to deliverable submissions such as feasibility reports, detailed project reports, or design packages, rather than physical measurements.