Invoice Factoring for Government Contractors: The Complete Guide

Why Government Invoices Are Premium Factoring Assets

The US federal government has never defaulted on its payment obligations. State and local governments are similarly reliable payers. This makes government-backed receivables the safest possible collateral for a factoring company—which translates directly into better rates and advance rates for contractors.

A government contractor factoring $100,000 in federal invoices will typically get:

- Advance rate: 85%–92% (vs. 80%–85% for typical commercial)

- Fee rate: 1%–2.5% per 30 days (vs. 2%–4% for typical commercial)

- Approval: faster (less credit analysis needed on the government as a payer)

The Assignment of Claims Act

The Assignment of Claims Act (31 U.S.C. § 3727) governs the assignment of federal contract receivables. The key rules:

Eligible contracts: Contracts over $1,000 with the federal government can be assigned.

Notice requirements: The assignment must be made in writing and notice must be given to the contracting officer and paying office.

One assignment rule: Only one assignment of the same claim is permissible—you can't factor the same invoice twice.

Anti-assignment clauses: Some contracts include anti-assignment provisions. However, specific statutory language can override contract provisions in many cases.

Reputable government factoring companies have standard processes for Assignment of Claims Act compliance. They prepare the required documentation and handle the notification to contracting officers.

Types of Government Contracts That Factor Well

Task orders on IDIQ contracts: Delivery orders against an existing Indefinite Delivery, Indefinite Quantity (IDIQ) vehicle are straightforward to factor once the task order is issued.

Fixed-price contracts: Clean milestone billing makes fixed-price contract invoices easy to verify and fund.

SBIR/STTR Phase II contracts: Small business innovation research contracts in Phase II have established milestones and funding from verified government agencies.

Cost-plus contracts: These are slightly more complex because final costs must be approved. Labor-dominated cost-plus invoices are factored regularly, but equipment or unusual cost items may require more verification.

State and local government: Similar to federal, but without the Assignment of Claims Act framework. Most state governments have their own assignment rules. City and county governments vary significantly.

How to Find a Government Contractor Factoring Specialist

Not every factoring company knows how to handle government receivables. When evaluating government-focused factors, ask:

- 'Have you handled Assignment of Claims Act documentation before?'

- 'Do you have experience with contracts at [specific agency]?'

- 'What is your advance rate on verified federal task orders?'

- 'How do you handle contract modifications or scope changes?'

- 'Do you work with 8(a) or veteran-owned small businesses?'

Specialized government contract factoring companies often have relationships with agency contracting officers and understand the WAWF (Wide Area Workflow) submission systems used for federal invoice submission.