How to Actually Get Paid on Your SBIR/STTR Award
Getting the email that your SBIR/STTR application is funded represents a huge accomplishment. Months of proposal preparation and review cycles have finally resulted in an Award Notification — clearly a reason to celebrate!
But a Notice of Award is not a check. In order to actually receive the funding, you are required to abide by Federal Acquisition Regulations (FARs) and other award-specific regulations – following those rules is critical to ensuring that the money actually lands in your bank account.
Each week, I speak with newly funded companies who are surprised to learn that “getting the award” and “getting the cash” are two very different things — and that the path between them looks completely different depending on which agency is providing the funding.
In this blog, I provide an overview of how the funding process for new awardees actually works, how it differs by agency, and how to manage your cash flow while you wait for the funds to arrive.
How do agencies release the actual cash?
It is first important to understand that federal SBIR/STTR funding flows through one of two basic models:
- Milestone-based funding — the agency releases a defined portion of your award on a pre-set schedule, typically tied to award start, interim reports, and project close, regardless of exactly how much you’ve spent at that moment.
- Cost-reimbursement funding — first you spend the funds and document what you have spent, and then you request reimbursement for costs already incurred.
Both models are common in the federal SBIR/STTR ecosystem, and they require very different cash management strategies. Milestone-based funding gives you working capital up front; cost-reimbursement requires you to float the project yourself until you’re paid back.
How do I calculate the funds that are due to me?
Regardless of which agency you’re working with, it’s important to properly calculate the expenses that you have incurred at any time during the project. Importantly, your actual incurred expenses are not just the direct costs that you have spent. The calculation for incurred costs incurred is:
Total incurred costs = Direct costs incurred + an allocation of indirect costs (based on your negotiated or approved rate) + fee (if applicable)
The trickiest part of this calculation is allocating the indirect costs correctly – we find that getting this wrong is one of the most common compliance findings when companies are audited. Here are two governing principles:
- You can’t invoice more indirects than you’ve “unlocked.” If you have $10,000 in direct costs and a 40% indirect rate, you’ve unlocked $4,000 in indirects for that period — even if your actual indirect spend is higher.
- You can’t invoice more indirects than you’ve actually spent. If you’ve unlocked $4,000 in indirects but only spent $1,000, you can only request reimbursement for $1,000.
The profit/fee (generally around 7%) is typically calculated on top of your combined direct-plus-indirect total and must be recognized proportionally to direct cost spend.
What are the differences between agencies?
Each of the 12 SBIR agencies (5 of which also offer STTRs) have specific payment policies. Here, we provide an overview of some of the larger agencies: the National Institutes of Health (NIH) within the Department of Health and Human Services (DHHS); the National Science Foundation (NSF); the Department of War (DOW), the Department of Energy (DOE) and the National Aeronautics and Space Administration (NASA).
NIH usually funds SBIR/STTR awards through a grant mechanism (although they also fund contracts) and payment occurs on a cost-reimbursement basis through the Payment Management System (PMS). Costs are recognized when they’re incurred, not necessarily when they’re paid — an unpaid subawardee invoice or an unpaid payroll run still counts as an incurred cost. Once you’ve tallied your incurred direct costs for the period, you may draw down the corresponding funds, plus the indirects and fee that spend has unlocked.
A few things to know about drawing from PMS:
- Funds drawn down generally need to be disbursed within roughly 72 hours, so time your draw close to when you’ll actually spend it.
- You typically have a 120-day liquidation period after your award’s period of performance ends to draw remaining funds for costs already incurred — this is useful for late-arriving invoices, such as from a university subawardee.
- Most awards allow a 90-day look-back period, meaning costs incurred up to 90 days before your official start date may be eligible for reimbursement.
NSF utilizes the milestone-based model, and it works very differently from NIH. Rather than reimbursing costs as they’re incurred, NSF makes funds available on a fixed schedule tied to your award’s timeline and reporting milestones.
A standard NSF milestone-based payment schedule for Phase I awards is for all of the awarded funds except for $25,000 of the award to become available after your period of performance start date. The final $25,000 is held back until NSF approves your final report.
A typical payment schedule for Phase II awards is:
- 25% of the total budget upon award
- 25% at the six-month mark, based on approval of the first interim report
- 25% at the twelve-month mark, based on approval of the second interim report
- 25% (less $25,000) at the eighteen-month mark, based on approval of the third interim report
- The final $25,000, based on approval of the final report and submission of the Project Outcomes Report
This means NSF awardees typically have more working capital available earlier in the project than NIH awardees — but it also means you must complete $25,000 of the work at-risk, pending the final payment.
DOW SBIR/STTR awards are structured as contracts, not grants, which brings a different vocabulary and a different payment process. Instead of drawing down from a Treasury system, you invoice through Wide Area WorkFlow (WAWF), the DOW’s electronic invoicing system.
How and when you get paid depends on your contract type:
- Cost-reimbursement (cost-plus-fixed-fee) contracts work similarly to NIH: you bill for costs already incurred, plus indirects and fee.
- Fixed-price contracts pay against negotiated performance milestones — typically tied to technical reports or deliverables — rather than actual costs. The value of each milestone is set up front, so it’s worth negotiating for a schedule that keeps your cash flow positive rather than back-loaded.
Of particular note are the Defense Advanced Research Projects Agency (DARPA) SBIR awards, which are DOW contracts paid through WAWF, but with aggressive milestones and significant program manager discretion.
Payments for DARPA awards depend on technical demonstration, and they are known for their slow payment cycle:
- Most Phase II awards hold 25–30% until a live prototype demonstration.
- Invoice payments take 45–60 days from submission, among the slowest in DOW.
Because program managers can withhold payments subjectively and turnover is frequent, negotiate your schedule carefully upfront and get all technical milestones in writing.
DOW contracting officers tend to be the most stringent of the major agencies when it comes to budget changes, so get confirmation of any rebudgeting or invoicing requests in writing before you act.
Like NIH, DOE SBIR/STTR awards are grants paid on a cost-reimbursement basis — but instead of the HHS Payment Management System, DOE uses the Department of Treasury’s Automated Standard Application for Payments (ASAP) system. The mechanics are the same as NIH: you incur costs, calculate the direct-plus-indirect-plus-fee total, and request reimbursement through ASAP, ideally on a cadence that matches your normal billing pattern, such as monthly.
NASA SBIR/STTR awards are also made through a contracts mechanism. You invoice through WAWF, but payments route through the NASA Shared Services Center (NSSC).
How you get paid depends on phase:
- Phase I uses firm-fixed-price milestones tied to deliverables, with more flexible timing than NSF.
- Phase II often shifts to cost-reimbursement, billing incurred costs plus indirects and fee.
Approval happens twice—first by your program officer, then by NSSC administrators—so payments typically take 15–30 days. However, the final payment is notoriously slow, and so you should be prepared to wait for 60–90 after your final report to receive the final portion of your award.
What’s the best way to manage cash flow while you wait to get paid?
Whether you’re waiting on an NIH or DOE drawdown, a DOW invoice cycle, or NSF’s next tranche, the common challenge is the same: payroll and vendor invoices don’t wait for the government’s payment timeline. A few strategies that consistently work for our clients to stay cash flow positive include:
- Use a business credit card. Paying vendors on a credit card gives you a few extra weeks of float before the bill is due, which can line up nicely with your reimbursement cycle — just be sure the costs are booked at the time they are incurred.
- Time your drawdown to land a few days before major expenses hit. For NIH awards in particular, since funds must generally be disbursed within about 72 hours of a PMS drawdown, request the draw a few business days ahead of payroll or a large vendor payment. Make sure that you consistently reconcile the funds drawn with the funds spent, as drawing funds before they’re needed is one of the most common cash management findings in single audits.
- Build a rolling cash flow forecast tied to your award budget. By creating pro forma financials that track your projected expenses with your reimbursement timelines, you can catch gaps before they happen rather than after.
- Keep a cash reserve or line of credit to cover one to two months of project spend. It is especially important to have extra cash in the early months of a cost-reimbursement award, to cover costs incurred before your drawdowns cover the expenses.
- Know your agency’s specific rules before you build your financial plan. A funding model that works for an NSF milestone schedule won’t necessarily work for a DOW cost-reimbursement contract, so build your cash strategy around the actual payment mechanism you’re working with, not a generic assumption.
How can Eva Garland Consulting help?
Navigating the gap between “award notification” and “cash in the bank” is exactly the kind of work EGC’s Accounting & Compliance team does every day. We help clients set up compliant project cost accounting systems, calculate indirect rate allocations correctly, manage drawdowns and create compliant invoices, and build cash flow plans that ensure you have sufficient funds to cover your expenses.
If you’ve recently received an award and would like support in setting up your accounting system or building a cash flow plan around your specific agency’s payment structure, we’d be glad to help.
