Factoring federal government contracts runs on paperwork set by the Assignment of Claims Act, and a federal agency can't pay your factor directly until a valid assignment has been filed and recognized. The requirements come from two statutes and FAR Subpart 32.8: a contract that allows assignment, a qualifying financing institution, a properly signed instrument of assignment, and a notice of assignment sent to up to three government offices. This guide covers who signs what, the filing sequence, a cost example and how subcontractor invoices differ.
What are the assignment of claims requirements for factoring federal contracts?
Under 41 U.S.C. 6305(a), a contractor may not transfer its federal contract or any interest in it, and a purported transfer annuls the contract as far as the government is concerned. Subsection (b) carves out the exception factoring depends on: assignment of amounts due to a financing institution.
The companion statute, 31 U.S.C. 3727 (2024 edition, checked October 6, 2026), normally lets a claim against the United States be assigned only after it's allowed, its amount decided and a payment warrant issued, with two witnesses. Subsection (c) drops those formalities for assignments to a financing institution under contracts with payments totaling at least $1,000 that meet the conditions below.
FAR 32.802 (FAC 2026-01, as of October 6, 2026) turns the statutes into a checklist, and the FAR overhaul's model deviation text for Part 32 carries the same conditions (FAR overhaul Part 32, page updated September 28, 2026). Agency regulations can add more.
| Requirement | What it means when you factor | FAR cite |
|---|---|---|
| Contract payments total $1,000 or more | Very small awards don't qualify | 32.802(a) |
| Assignee is a bank, trust company or other financing institution | Your factor has to fit that description | 32.802(b) |
| The contract doesn't prohibit assignment | Clause 52.232-24 blocks it | 32.802(c) |
| Covers all unpaid amounts, unless the contract expressly permits otherwise | Every remaining payment on the contract is assigned | 32.802(d)(1) |
| Made to one party, which may act as agent or trustee for several financiers | You can't split one contract between two factors | 32.802(d)(2) |
| No further assignment, except to another financing institution while the conditions still hold | Your factor can pass the assignment on | 32.802(d)(3), 32.803(a) |
| Notice plus a true copy of the assignment goes to the contracting officer or agency head, any bond surety and the disbursing officer | Nothing changes at the agency until this is filed | 32.802(e) |
The all-unpaid-amounts rule catches many contractors out. By default, every remaining dollar on a federal prime contract goes to the factor, which settles with you under your factoring agreement, so spot factoring of a single federal invoice seldom works. FAR 32.803(c) adds one opening: under a requirements or indefinite-quantity contract that authorizes ordering and payment by multiple government activities, individual orders of $1,000 or more may be assigned.
Who signs what, and who receives it
| Document | Who signs | Who receives it |
|---|---|---|
| Instrument of assignment | Your company, with the formalities in FAR 32.805(a) | The factor, and a certified true copy goes to each government addressee |
| Notice of assignment | The factor, as assignee | Contracting officer or agency head, surety on any bond, disbursing officer named in the contract |
| Acknowledgment | The person receiving the notice at each office | Returned to the factor |
| Notice of release | Filed by you once the factor releases the assignment and a balance remains | The same offices |
Under FAR 32.805(a), a corporation's assignment must be executed by an authorized representative, attested by the secretary or assistant secretary, and either impressed with the corporate seal or accompanied by a true copy of the board resolution authorizing the signer. One general partner can sign for a partnership with adequate evidence of authority, and an individual's signature must be acknowledged before a notary public or another person authorized to administer oaths. The FAR text doesn't separately address LLCs, so ask what proof of authority the factor and contracting officer will accept.
The factor forwards to each addressee an original and three copies of the notice, plus one certified true copy of the assignment (FAR 32.805(b)). Each office returns the copies signed and marked with the date and hour of receipt. Before acknowledging, contracting officers should confirm the contract was properly approved and executed, its claims can be assigned, the assignment covers only money due under it, and the assignee is registered separately in the System for Award Management (SAM) unless a FAR 4.1102 exception applies.
Filing a notice of assignment, step by step
- Read the contract. Look for clause 52.232-23, Assignment of Claims, or its Alternate I, and make sure clause 52.232-24, Prohibition of Assignment of Claims, isn't there. FAR 32.806 requires 52.232-23 in contracts expected to exceed the micro-purchase threshold unless assignment is prohibited, though purchase orders don't need it. On classified work, paragraph (c) bars giving the factor classified documents, including the contract, without the contracting officer's written authorization.
- Vet the factor. Confirm it qualifies as a financing institution, holds its own SAM registration, and has filed federal assignments before.
- Sign the factoring agreement and the instrument of assignment, following the signing rules for your entity type.
- The factor sends the package to the contracting officer, disbursing officer and any bond surety.
- Each office reviews and acknowledges, returning signed copies that show the date and hour of receipt.
- Invoice as usual. Payments under the assigned contract now go to the factor, which settles with you under your agreement.
- File the release at the end. If the factor releases you while a balance remains, you file a written notice of release and a true copy of the release instrument with the same offices (FAR 32.805(e)).
With no FAR deadline for the acknowledgment, the wait depends on the office's workload and how complete the package is. Calling the contracting officer first to ask who handles notices of assignment can head off a resubmission, and ask your factor whether it advances before acknowledgments return.
What factoring a federal invoice costs: a worked example
Where the contract includes the Prompt Payment clause at FAR 52.232-25 (as of October 6, 2026), the payment due date is generally the later of the 30th day after the designated billing office receives a proper invoice or the 30th day after government acceptance. Federal sources don't set factoring fees or advance rates, so the figures below are assumptions.
Assume a $60,000 invoice, an 85% advance rate, and a factoring fee of 2.5% of face value for the first 30 days plus 0.5% for each additional 10 days.
| Agency pays on day 30 | Agency pays on day 50 | |
|---|---|---|
| Advance at 85% | $51,000 | $51,000 |
| Factoring fee | $1,500 (2.5%) | $2,100 (3.5%) |
| Rebate when the agency pays | $7,500 | $6,900 |
| Fee as a share of cash advanced | 2.9% | 4.1% |
| Simple annualized cost on cash advanced | about 36% | about 30% |
The slower payment costs $600 more despite the lower annualized figure. Our guides on invoice factoring rates and fees and factor rates versus APR show how to convert quotes. A bank offering a receivables-backed business line of credit is a financing institution under the same statutes, so it needs the same assignment if it wants the agency to pay it directly.
Prime contractor versus subcontractor invoices
The statutes reach claims against the United States Government (31 U.S.C. 3727(a)) and amounts due from the federal government under a contract (41 U.S.C. 6305(b)). A subcontractor's invoice is owed by the prime contractor, so no contracting officer acknowledges anything. The factor buys it as a commercial receivable with the prime as the debtor, and the factor will review the subcontract's payment and assignment terms.
| Prime contractor invoice | Subcontractor invoice | |
|---|---|---|
| Who owes the money | The federal agency | The prime contractor |
| Assignment of Claims Act filing | Needed for the agency to pay the factor | Not needed, since the agency isn't the debtor |
| Who gets notice | Contracting officer or agency head, disbursing officer, any bond surety | The prime, if the factor uses notification factoring |
| What the factor underwrites | Your performance, setoff exposure, the contract's clauses | The prime's payment record and the subcontract's terms |
If your subcontract ties your payment to the prime getting paid, a factor will weigh that when it prices the deal, and approval and terms vary by factor.
Setoff, novation and other checks before you sign
Setoff. When an assigned contract has no no-setoff commitment, FAR 32.803(e) lets the government apply against payments to the assignee any contractor liability arising independently of the contract that existed when the notice was received, even if not yet due. Payments already made to the assignee can't be recovered on account of the contractor's liability (FAR 32.804(a)). A no-setoff commitment (Alternate I of the clause) needs an agency-head determination published in the Federal Register. Expect a factor to ask about debts you owe the government.
Novation is a separate process. FAR Subpart 42.12 covers recognizing a successor in interest when contractor assets are transferred, and name changes. Financing receivables runs through Subpart 32.8.
Recourse. Whether you buy back an invoice the agency disputes depends on your agreement, and our guide to recourse versus non-recourse factoring covers what to look for.
EQ Funding routes one application to factors and lenders that compete to fund your business. They assess your contracts, credit and repayment ability, and approval and terms vary by lender. Start on our invoice factoring page.