Government Contract Factoring
Factoring for businesses that invoice federal agencies, state and local governments, or prime contractors on public work.
Factoring for businesses that invoice federal agencies, state and local governments, or prime contractors on public work.
Updated September 2026
Government contract factoring advances 85–95% of an approved invoice to a federal agency, state or local government, usually for a fee of about 1–2.5% per 30 days, because the government almost always pays. The work is in the paperwork: on federal contracts the payment has to be formally assigned to the factor under the Assignment of Claims Act, with notice to the contracting officer, before the government will pay the factor directly. Subcontractors invoice the prime contractor instead, so the prime’s credit, not the government’s, sets the terms.
| Advance rate | 85–95% on federal invoices; 80–90% on state, local and prime-contractor invoices |
|---|---|
| Fee | About 1–2.5% per 30 days outstanding |
| Who pays | The agency or prime contractor, directly to the factor once the assignment is in place |
| Setup | 1–4 weeks, including the assignment of claims on federal contracts |
| Ongoing funding | Typically 24–48 hours after an invoice is submitted and accepted |
| Your credit | Secondary; the government’s ability to pay does most of the work |
| Minimum | Around $25K a month in invoices; one large contract can qualify |
| Common users | Service contractors, IT and consulting firms, suppliers, construction subcontractors |
| Invoice owed by | Advance | Fee per 30 days |
|---|---|---|
| Federal agency, direct contract | 85–95% | 1.0–2.0% |
| State agency or university | 85–90% | 1.5–2.5% |
| City, county or school district | 80–90% | 1.5–3.0% |
| Prime contractor (you are a subcontractor) | 80–90% | 1.5–3.0% |
Fees are per 30 days the invoice is outstanding. Federal agencies generally pay a proper invoice within 30 days under the Prompt Payment Act; state and local payment times vary widely, and a slow payer costs more because the fee keeps accruing.
Illustrative outcomes for one invoice. The advance arrives when the invoice is funded; the balance, less the fee, arrives when the customer pays.
| Example | Invoice | Advance now | Fee | Balance later |
|---|---|---|---|---|
| Federal services invoice, paid in 28 days90% advance · 1.5% per 30 days × 1 | $120,000 | $108,000 | $1,800 | $10,200 |
| County contract, paid in 55 days85% advance · 2% per 30 days × 2 | $60,000 | $51,000 | $2,400 | $6,600 |
| Subcontract invoice to a prime, paid in 45 days85% advance · 2.5% per 30 days × 2 | $80,000 | $68,000 | $4,000 | $8,000 |
Fee shown as the rate times the number of 30-day periods the invoice is outstanding, counting a partial period as a full one. Agreements differ; some charge by the day or in 10- or 15-day steps.
A factor is really lending against your customer’s promise to pay, and few customers pay as reliably as the federal government. That is why government invoices get some of the highest advance rates and lowest fees in factoring. The risk shifts from “will they pay” to “will this invoice be accepted and routed correctly,” which is a paperwork question a good factor helps you answer.
Contractors factor for the same reason other businesses do, with a sharper edge: payroll starts on day one of a new contract, but the first payment arrives only after the first invoice is accepted, often 30–60 days in. Winning a larger award can make the gap bigger, not smaller.
Federal payments cannot simply be redirected to a factor by a letter. Under the Assignment of Claims Act, the right to payment under a federal contract can be assigned to a financing institution only if the contract does not prohibit it, and the assignment takes effect when written notice and a copy of the instrument of assignment are filed with the contracting officer, the disbursing office and any surety. The assignment generally has to cover all remaining payments under the contract and cannot be split among several financiers.
In practice the factor prepares the documents, you sign them, and the contracting officer acknowledges the notice. Until that acknowledgment comes back, the agency keeps paying you, so many factors fund the first invoices on a verified basis and move to direct payment once the assignment is recognized. Budget a few weeks for it at the start of a contract.
A federal assignment is a paper trail with three recipients. Under FAR 32.805, the financing institution sends a written notice of assignment, with a true copy of the instrument of assignment, to the contracting officer or agency head, to the surety if the contract is bonded, and to the disbursing officer. The contracting officer returns a copy noted with the date and time of receipt. That acknowledgment is a receipt, not an approval, but it is the point from which the agency can be expected to pay the factor instead of you.
| Requirement | What the rule says | Where |
|---|---|---|
| Who can take an assignment | A bank, trust company or other financing institution | FAR 32.802 |
| Contract size | Payments of $1,000 or more; on task-order contracts, individual orders of $1,000 or more | FAR 32.802, 32.803 |
| Must be permitted | The contract cannot prohibit assignment, and an agency may prohibit it when that serves the government | FAR 32.802, 32.803 |
| What it covers | All unpaid amounts, to one financing party or one agent for several, unless the contract says otherwise | FAR 32.802 |
| Who is notified | Contracting officer, any surety, and the disbursing officer | FAR 32.805 |
| What the officer checks | That the contract is approved and executed, assignable, and that the assignee is registered in SAM.gov | FAR 32.805 |
Two practical points follow. First, check the contract for an assignment prohibition before you start; an award that bars assignment cannot be factored on a direct-payment basis, so the factor will need a different arrangement or may decline it. Second, an assignment covers the whole contract, so you cannot factor one invoice to one financier and the next to another. Plan on one factor per contract and choose it before the first invoice.
Federal due dates come from the Prompt Payment Act and FAR 32.904. For most supply and service invoices, payment is due on the later of 30 days after the agency receives a proper invoice and 30 days after it accepts the goods or services. If the agency does not inspect within 7 days of delivery, acceptance is treated as having occurred on day 7 for interest purposes, unless there is a dispute over quality, quantity or compliance. A few categories have shorter clocks: construction progress payments are due 14 days after a proper request, and meat, poultry, fish and perishable produce are due within 7 to 10 days of delivery.
An agency that pays late owes interest automatically, with no request from you, under FAR 32.907 and 31 U.S.C. 3902. Interest runs from the day after the due date at the Treasury rate published for the Contract Disputes Act, and an additional penalty can apply if interest goes unpaid for 10 days and you demand it in writing within 40 days. No interest is owed when the delay comes from a dispute or from amounts the agency is withholding under the contract.
What this means for factoring cost: the fee runs per 30 days the invoice is outstanding, so a clean, properly addressed invoice that is paid on day 30 costs one period, and a rejected invoice that restarts the clock costs another. Ask the factor how it treats any late-payment interest before you sign.
Most delays in government payment are invoice rejections, not slow agencies. Defense invoices go through the Procurement Integrated Enterprise Environment, and many civilian agencies use the Treasury’s Invoice Processing Platform; each checks the contract number, line items, quantities and remittance details against the award. Your registration in SAM.gov has to be active and the banking details consistent with the assignment. A factor that works with government receivables will review your first invoices before submission, which is often worth as much as the advance.
States, counties, cities, school districts and public universities pay under their own prompt-payment laws, and timelines range from about 30 days to 90 or more. Some limit or regulate assignment of payments, and some require the vendor’s remittance address to be changed through their own forms. Factors price state and local invoices a little higher than federal ones, mainly for the longer and less predictable wait. Ask the factor whether it has been paid by your specific agency before; experience with a payer matters more here than anywhere.
If you invoice a prime contractor rather than the government, the factor underwrites the prime. A large, established prime with a clean payment record factors almost as well as the government; a small prime that waits to be paid before paying its subs is riskier, and the terms reflect it. Pay-when-paid clauses in the subcontract matter, because they tie your payment to the government’s payment of the prime. On federal construction, payment bonds give subcontractors an additional route to payment; see invoice factoring for construction companies for how progress billing and retainage change the picture.
Factoring funds work you have already delivered and invoiced. If you need to buy materials or products before you can deliver on an award, purchase-order financing can pay the supplier against the order itself. For mobilization costs that are neither a supplier bill nor an invoice, such as hiring ahead of a start date, working capital is the more flexible tool. Many contractors use two of the three at different points in a contract.
The gap at the start of an award is longer than most owners plan for. Payroll starts on day one. The assignment takes a few weeks to set up. The first invoice is accepted 7 or more days after delivery and paid up to 30 days after that. A contractor with a $60,000 monthly payroll can carry $120,000 or more before the first federal payment arrives, so size the bridge before you accept the award and line it up alongside the factoring facility.
For the full mechanics of fees, recourse and notification, see the invoice factoring guide, or apply once at invoice factoring to compare offers.
Yes. Federal invoices are some of the easiest to factor because the government reliably pays. The payment has to be assigned to the factor under the Assignment of Claims Act, with notice filed with the contracting officer, before the agency will pay the factor directly.
Usually a few weeks, depending on how quickly the contracting officer acknowledges the notice. Many factors fund early invoices on a verified basis while the assignment is being processed.
Fees on federal invoices typically run about 1 to 2 percent per 30 days outstanding, with 85 to 95 percent advanced. State, local and prime-contractor invoices usually cost a little more because payment takes longer.
Yes. A subcontractor factors its invoices to the prime contractor, so the factor looks at the prime’s credit and payment history rather than the government’s. Pay-when-paid terms in the subcontract affect how long payment takes.
Much less than with a loan. The factor relies mainly on the government or prime contractor paying the invoice. It will still check for tax liens, existing liens on receivables and the basics of your business.
Yes. State and local invoices are factored routinely, usually at slightly lower advances and higher fees than federal invoices because payment timelines are longer and vary by agency.
The financing institution sends a written notice of assignment and a true copy of the assignment instrument to the contracting officer, any surety on the contract and the disbursing officer (FAR 32.805). The contracting officer returns a copy noting the date and time of receipt. That acknowledgment is a receipt, not an approval, and it is the point from which the agency can pay the factor directly.
Yes. Assignment is allowed only if the contract does not prohibit it, and an agency may prohibit it when that is in the government's interest (FAR 32.803 and clause 52.232-24). Check the contract before you apply. If assignment is barred, the agency pays you rather than the factor, so a factor needs a different arrangement or may decline it.
For most supply and service invoices, the later of 30 days after it receives a proper invoice and 30 days after it accepts the goods or services (FAR 32.904). Construction progress payments are due 14 days after a proper request, and meat, poultry, fish and perishable produce have shorter clocks. Late payment triggers automatic interest under the Prompt Payment Act.
Yes, automatically, on undisputed invoices paid after the due date (FAR 32.907 and 31 U.S.C. 3902). Interest runs from the day after the due date at the Treasury rate for the Contract Disputes Act. It is not owed when the delay comes from a dispute or from amounts withheld under the contract. Ask your factor whether it keeps the interest or passes it through.
Not under an assignment of claims. Unless the contract says otherwise, the assignment covers all unpaid amounts and goes to one financing party, or one agent for several (FAR 32.802). Choose one factor per contract. You can use a different factor or lender for a different contract.
Plan for four to eight weeks. The assignment takes a few weeks to set up, and the first invoice is accepted and then paid up to 30 days later. Factoring covers work you have already invoiced, so pair it with purchase-order financing if you buy goods to deliver, or working capital for payroll and mobilization costs.
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