Quick answer
The single biggest differentiator among funders in this sector is whether they can actually execute an assignment of claims — many cannot, and the ones that cannot will discover it after you have signed. Beyond that, compare how a funder handles federal versus state and local receivables, whether they will fund you as a subcontractor rather than only as a prime, their familiarity with agency invoicing and acceptance systems, and whether they can bridge mobilization before any invoice exists. This is general information, not legal advice.
Key takeaways
- Ask how many assignments of claims the funder completed in the last year. Capability here is binary and most of the sector does not have it.
- Start the assignment at award, not when cash is tight — acknowledgement commonly takes two to four weeks and cannot be rushed from the outside.
- Federal, state and local receivables behave differently; a funder strong in one may have no process for the others.
- As a subcontractor you are financing a commercial receivable from the prime, not an agency receivable — make sure the funder prices it that way.
- Mobilization is the real cash problem on a new award, because the first payroll runs months before the first payment.
Can they actually execute an Assignment of Claims?
Start here, because everything else is secondary. Government receivables are generally not assignable in the ordinary commercial way. Instead there is a specific statutory mechanism under which a contractor may assign amounts due under a contract to a financing institution, with written notice and true copies of the instrument of assignment served on the contracting officer, the disbursing officer and any surety, and an acknowledgement returned. Only a qualifying financing institution can be the assignee, the contract has to permit assignment, and the payment record at the paying office has to be updated before money will flow to the right place. Acknowledgement commonly takes two to four weeks.
A great many receivables funders cannot do this. Some are not structured as a qualifying assignee. Some have never served a notice and do not have the templates, the relationships or the patience for the follow-up. And a funder who cannot complete the assignment has two bad options: fund you anyway while payments continue to arrive in your account, which creates exactly the misdirected-payment problem the statute exists to prevent, or decline after you have already signed and filed.
The test is numerical and easy to apply. Ask how many assignments they completed in the last twelve months, which agencies, and who on their team handles the follow-up with the contracting officer. A capable funder answers immediately with specifics. An incapable one answers with reassurance. Treat reassurance as a no.
- 1Confirm the contract permits assignment. Before anything else, the contract has to allow it. Ask the funder to review the award and identify any prohibition or restriction, and expect them to ask for the document rather than take your word for it.
- 2Confirm the assignee qualifies. The assignment runs to a financing institution. Ask the funder to state plainly, in writing, that they are able to take the assignment in their own name and have done so before.
- 3Execute the instrument of assignment. The assignment document is prepared and signed. A funder with a working process has standard forms and a checklist of the attachments each agency expects.
- 4Serve written notice with true copies. Notice and true copies go to the contracting officer, the disbursing or paying office, and the surety on any bond. Ask who physically does this and how they confirm delivery.
- 5Obtain the acknowledgement. The acknowledgement is what makes the assignment effective in practice. This is the two-to-four week step. Ask what the funder does when an acknowledgement stalls, because the answer is the whole value of the service.
- 6Verify the remittance record is updated. An acknowledged assignment that has not reached the payment system still pays the wrong account. A good funder checks the payment record before the first invoice rather than after the first misdirected payment.
- 7Invoice and draw. Only now does the normal cycle begin: invoice through the required system, acceptance, advance, and reserve release on payment.
Which capabilities should I score a government funder on?
The capability table for this sector is unusually weighted toward process rather than price, because an agency is a reliable payer and the risk that remains is almost entirely administrative.
| Capability | Why it matters for a contractor | What a good answer looks like |
|---|---|---|
| Assignment of claims execution | Without it, federal payments keep going to your account and the facility does not work | A specific count of assignments completed in the last year, named agencies, and a named person who follows up on acknowledgements |
| Federal versus state and local | The mechanism, the paying offices and the local practices differ in each | Separate processes described for each, rather than one process described twice |
| Prime versus subcontractor funding | As a sub you are owed by the prime, which is a commercial credit, not an agency credit | The funder underwrites the prime's credit, asks for the subcontract, and prices it as commercial exposure |
| Acceptance and invoicing systems | An invoice submitted outside the required system or before acceptance restarts the clock | Familiarity with the submission and acceptance workflow your contract specifies, and funding keyed to acceptance rather than submission |
| Mobilization funding | The first payroll on a new award runs months before the first payment arrives | A facility sized against the award's billing run-rate, available as early invoices are accepted, with the gap quantified honestly |
| Cleared-staff payroll cadence | Cleared personnel are expensive, scarce and will not wait for a late payroll | Weekly or biweekly draw capability keyed to your payroll calendar, not a monthly funding cycle |
| Retainage and withholding awareness | Some contracts withhold amounts that cannot be counted as financeable balance | The funder asks about withholding terms up front and excludes them from eligibility explicitly |
| Existing UCC and lien position | A prior blanket filing has to be subordinated or released before a funder can take position | The subject is raised in the first conversation with a realistic timeline, not at closing |
| Contract vehicle experience | Schedule, IDIQ, task-order and set-aside structures each have their own billing rhythm | The funder can describe the billing pattern of your vehicle without being told |
| Discretion with the contracting officer | Your relationship with the agency and the prime is an asset worth protecting | Professional, routine correspondence and a funder who treats the assignment as administrative rather than adversarial |
How do federal, state and local receivables differ for a funder?
Contractors often say they do government work as though it were one market. For a funder it is three, and capability in one does not imply capability in the others.
Federal work runs on the statutory assignment mechanism described above, with a defined notice-and-acknowledgement sequence and a paying office that is usually separate from the contracting office. The process is consistent, well understood by funders who do it, and slow in a predictable way.
State and local work is governed by each jurisdiction's own rules and the terms of the particular contract. Some states have an assignment procedure that resembles the federal one; some require consent from a named official; some contracts prohibit assignment outright; some agencies will simply change a remittance address on request. The variation is the point — a funder who says state work is handled the same way is a funder who has not done much of it. Ask which states and which types of body, because a school district, a transit authority and a state department of transportation are not interchangeable.
Payment speed differs too, and in a way that affects cost rather than structure. Agencies at all levels are reliable payers; they are not always fast ones, and a municipality with a monthly council approval cycle can be slower than any federal paying office. Since receivables pricing accrues per 30 days, ask the funder what they have actually seen from the specific bodies you invoice, and price the facility on that rather than on the contract terms.
Am I being funded as a prime or as a subcontractor?
This distinction changes the entire credit, and a surprising number of conversations go several rounds before it is made explicit. As a prime, the agency owes you, and the assignment mechanism applies to that obligation. As a subcontractor, the prime owes you. The agency's reliability is relevant background, but it is the prime's willingness and ability to pay that determines whether you are paid, and the prime's own payment behavior that determines when.
A funder who understands this will underwrite the prime as a commercial counterparty: credit on the prime entity, a look at the subcontract, attention to any flow-down provision that conditions your payment on the prime's receipt, and a verification process that runs through the prime's accounts payable rather than the agency. A funder who talks about agency credit while financing your subcontract receivable has not read the structure, and the correction usually arrives as a clawback.
Ask what evidence they need at the subcontract level. A signed subcontract rather than an award announcement. Deliverables accepted by the prime, with whatever sign-off the subcontract specifies. Confirmation of whether your payment is conditioned on the agency paying the prime first. And ask whether they will contact the prime to verify, because a prime that resents an unannounced verification call can make the next task order unpleasant.
Can they bridge mobilization before any invoice exists?
Winning the award is the easy part of the cash cycle. The hard part is the period between the first payroll and the first payment, during which you are fully staffed, fully exposed and holding no financeable receivable at all. This is where new contractors on good contracts get into trouble, and it is the right stress test for a prospective funder.
Size it before you talk to anyone, so you can judge whether the answers you get are serious.
A new 12-month services award worth $2,400,000, invoiced monthly, with fully burdened payroll at $152,000 a month, first invoice submitted at month end and paid by the agency on day 45.
| Annual contract value | $2,400,000 |
|---|---|
| Monthly invoice | $200,000 |
| Fully burdened monthly payroll | $152,000 |
| Days from first payroll to first agency payment | about 75 |
| Payroll carried before any cash arrives (2.5 months) | $380,000 |
| Advance on the first accepted invoice at 90% | $180,000 |
| Fee at 1.25% per 30 days, agency pays on day 45 (1.875%) | $3,750 |
| Reserve released at payment | $16,250 |
The whole question on a new award is who carries that $380,000. A funder that files the assignment at award and has it acknowledged before your first invoice turns it into a single 75-day bridge. A funder that starts the paperwork after your first invoice has already gone out can add two to four weeks to it — and that extra month is another $152,000 of payroll. Annual financing cost at this run-rate is $45,000, or 1.875% of contract value.
What should I ask before I sign?
Take the award document, the contract's assignment and payment clauses, and the subcontract if you are a sub. Then work through this list and get the answers in writing.
- How many assignments of claims did you complete in the last twelve months, and with which agencies?
- Are you able to take the assignment in your own name as the financing institution? Please confirm that in writing.
- Who on your team serves the notice and chases the acknowledgement, and what do you do when it stalls past four weeks?
- Will you review my award for any prohibition or restriction on assignment before we sign a term sheet?
- Do you fund state and local receivables, and in which states and which types of agency?
- Am I being underwritten on the agency's credit or the prime's, and how does that change my rate and advance?
- Which invoicing and acceptance systems have you worked with, and do you fund at submission or at acceptance?
- Can you size a facility against my award's billing run-rate before the first invoice exists, and how early can I draw?
- Can you fund on a weekly or biweekly cadence to match cleared-staff payroll rather than a monthly cycle?
- I have an existing blanket UCC filing — what is your realistic timeline to subordinate or release it?
- How will you correspond with my contracting officer, and may I see the template before it is sent?
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Written and reviewed by the National Invoice Factoring funding team — specialists in receivables and trade finance since 2009.
