Published 2026 | TIKC NewsWire
Cash flow is the quiet killer of government contractors. You have delivered, the invoice is in, but payment is weeks away and payroll is not. So a bank or a factoring company offers to advance you money against those government receivables. That can be a real lifeline, and it is often perfectly legal. But government payments are not ordinary receivables. There is a law, the Assignment of Claims Act, that governs when and how you can assign the right to be paid by the government. Get it right and you unlock cash. Get it wrong and you can lose the advance or snarl your contract.
Why government invoices are different
With a commercial customer, selling or pledging your invoices is mostly between you and your lender. The government is different. By default it pays you, the contractor it signed with, not whoever you quietly handed the invoice to. The Assignment of Claims Act sets out the narrow, formal way you can assign the right to those payments, usually to a bank or other financing institution, and only with proper notice to the government. If you skip the formalities, the government may simply keep paying you, and your financing arrangement can fall apart.
The honesty that keeps factoring clean
Factoring itself is not the risk. The risk is doing it in the shadows. If you assign or factor your government receivables, the arrangement needs to follow the statute, be disclosed as required, and rest on invoices that are real and earned. The danger zone is factoring invoices for work not yet done, or double-pledging the same receivable, which turns a cash-flow tool into a false statement about what you are owed. Your financed invoices have to match the same reality as your progress payments and billing.
Watch the change-of-ownership line too
Assigning the right to payment is not the same as assigning the contract itself. You generally cannot hand your actual contract to another company without the government’s consent, which is a separate process close to novation and change of ownership. Owners sometimes blur the two, thinking that because they financed their invoices they can also move the work or the company freely. Keep them separate in your mind: payments can be assigned under the Act with the right steps, but the contract itself moves only with the government’s blessing.
What to do now
- Use a proper institution. Assign government receivables to a bank or financing company in the way the Act allows.
- Give required notice. Make sure the assignment is formally noticed to the government, not done quietly.
- Factor only real invoices. Never finance work not yet performed or double-pledge the same receivable.
- Keep billing consistent. Your financed invoices must match your actual, earned billing.
- Separate payment from contract. Remember that moving the contract itself needs government consent, unlike assigning payment.
Financing your receivables can be exactly the bridge that keeps good people paid while the government catches up. Just do it in the light: proper institution, proper notice, real invoices. Keep your financing as honest as your billing, and a cash-flow tool stays a strength instead of becoming a trap. Brick by brick.
FAQ
What is the Assignment of Claims Act?
A law governing when and how a contractor can assign the right to be paid by the government, usually to a bank or financing institution, with proper notice. Government payments cannot be freely handed off like ordinary receivables.
Is factoring my government invoices legal?
Often yes, when done through a proper institution, with required notice, on real earned invoices. The risk is doing it informally or on work not yet performed.
What makes it fraud?
Factoring invoices for work not yet done, or double-pledging the same receivable, misrepresents what you are owed and can become a false statement.
Is assigning payment the same as assigning the contract?
No. You can assign the right to payment under the Act with the right steps, but moving the contract itself to another company generally requires the government’s consent.
Sources
Assignment of Claims Act, 31 U.S.C. 3727 and 41 U.S.C. 6305. (2026).
Federal Acquisition Regulation. (2026). Subpart 32.8, Assignment of Claims.
This article is general information, not legal advice.
About the Author
Melanie Patterson
Founder and CEO of Team Integrity Knowledge Center and creator of GovCon iSource. Former nurse turned entrepreneur with over 10 years guiding small, women-owned, and minority-owned businesses to over $10 million in government awards. Build, grow, scale, brick by brick. Contact
