Government Factoring FAQs

When a government contractor completes work under a contract and submits an invoice, that invoice represents payment owed by the government agency. Factoring allows contractors to access funds tied to those receivables while the invoice moves through the government payment process. This allows contractors to maintain operational cash flow covering payroll, subcontractors, and materials while waiting for government payments to be processed.

Factoring providers evaluate government contract receivables to determine whether they meet the requirements for funding. Key factors include the government entity responsible for payment, the structure of the contract, and the documentation supporting the invoice. Because government contracts operate under specific regulatory frameworks, financing programs must be structured to comply with those requirements.

The misconception that government invoices cannot be factored is addressed directly in the Government Contractor Factoring Misconceptions Guide [MS].

The Assignment of Claims Act establishes rules allowing contractors working with federal agencies to assign receivables from government contracts to a financial institution or factoring provider. Factoring programs structured for federal contract receivables must comply with these requirements which is one reason experience with government receivables is a critical evaluation criterion when selecting a factoring company.

The Assignment of Claims Act is defined in detail in the Government Contractor Factoring Definitions Guide [DF].

Factoring providers typically review invoices and supporting documentation before advancing funds. The timing of funding depends on how quickly documentation can be verified and whether the invoice and contract are in order. Contractors with well-organized documentation and established factoring relationships generally experience more predictable funding timelines.

Government contractors may operate under federal, state, county, or municipal contracts — each involving different payment entities and administrative processes. Factoring providers that specialize in government receivables often structure programs that accommodate these different payment structures. Contractors should review whether a prospective provider has experience with the specific type of government contract involved.

When factoring is used, the contractor continues performing the work, issuing invoices, and managing the contract relationship with the government agency. The financing provider manages the receivable after the invoice is issued. In practice, the process functions as an administrative payment redirection rather than an operational change.

Government contractors may operate under federal, state, county, or municipal contracts each involving different payment entities and administrative processes. Factoring providers that specialize in government receivables often structure programs that accommodate these different payment structures. Contractors should review whether a prospective provider has experience with the specific type of government contract involved.

Many government projects involve prime contractors who subcontract portions of the work. Subcontractors typically invoice the prime contractor rather than the government agency directly. In these cases, the factoring provider evaluates the creditworthiness of the prime contractor not the government agency when reviewing those receivables. Subcontractor factoring is available, though program structures may differ from those for direct government contracts.