Quick answer
Government agencies are among the most reliable payers in the country and among the slowest, so the financing problem is timing rather than credit. Receivables financing advances up to 90% against accepted agency invoices, and for federal prime contracts the payment stream is redirected under the Assignment of Claims Act — a notice-and-acknowledgement process that typically takes two to four weeks to put in place.
Key takeaways
- Agency credit risk is low and agency timing risk is the entire problem — finance accordingly.
- Federal primes assign payment to a financing institution under the Assignment of Claims Act; start it before you need the cash, because it typically takes 2–4 weeks.
- State and local receivables sit outside the federal act — assignment rules differ by jurisdiction and sometimes by agency.
- Subcontractors are underwritten on the prime's commercial credit, not the agency's, and pay-when-paid clauses matter more than the award value.
- A contract award is not a receivable: financing begins at acceptance and a properly submitted invoice.
Why are agencies reliable payers but slow ones?
A government receivable carries an unusual risk profile: the probability that the money arrives eventually is very high, and the probability that it arrives when you planned is not. Agencies do not go insolvent in the way a commercial customer can, but they do run acceptance reviews, invoice portals, contracting-officer workloads, appropriation cycles and audit requirements, each of which adds days.
That combination is exactly what receivables financing is built for. When the uncertainty is about timing rather than collectability, the cost of bridging it is a known, finite number, and the contractor's own balance sheet stops being the constraint on how many awards it can carry at once.
It also explains why agency contractors often look over-leveraged on paper while being fundamentally sound. Payroll for cleared staff, supplies and subcontractor invoices all precede the agency's payment by one to three months, and the gap widens every time a new award is won.
When does a contract become a financeable receivable?
This is the question that causes the most disappointment. An award is a commitment to buy; it is not money owed. A receivable exists when you have delivered something the agency has accepted and you have submitted an invoice in the form the contract requires, through the channel the contract specifies.
Everything before that point is a different financing conversation — working capital, purchase order financing on product awards, or the contractor's own resources.
- The contract or task order is executed and the work is in scope
- The deliverable, service period or milestone has been performed
- The agency has accepted it, or the acceptance condition in the contract has been met
- An invoice has been submitted in the required format and through the required portal
- The amount is undisputed and not subject to withholding or retainage
- There is no prohibition on assignment in the contract, or the prohibition has been addressed
How does Assignment of Claims actually work?
For federal prime contracts, the Assignment of Claims Act provides the mechanism by which a contractor assigns its right to payment under the contract to a financing institution, so the agency pays the funder directly. It is a formal, document-driven process, and its timing is the main thing a contractor needs to plan around.
The sequence below describes the mechanism in general terms. The specific requirements depend on the assignment clause in your contract, and the process is best run with your counsel and your contracting officer involved from the start.
- 1Confirm the contract permits assignment. Read the assignment clause before anything else. Some contracts permit assignment, some condition it, and some prohibit it. Discovering a prohibition at closing costs weeks.
- 2Identify the assignee. Assignments under the Act are generally made to a bank, trust company or other financing institution, and generally cover the amounts due under the contract rather than a selected part of them.
- 3Execute the instrument of assignment. The written assignment is executed alongside the financing agreement, and the two have to be consistent with one another.
- 4Serve written notice with true copies. Notice of the assignment, with a true copy of the instrument, is served on the contracting officer, the disbursing or payment office, and the surety on any bond under the contract.
- 5Obtain the acknowledgement. The contracting office acknowledges receipt. This is the step that sets the pace of the whole exercise and is the main reason the process typically takes two to four weeks.
- 6Verify the payment record is updated. Confirm that remittance details now route to the assigned account. Test it with one invoice before you build a cash plan around the timing.
- 7Invoice and draw. With the assignment acknowledged and accepted invoices submitted, advances follow the normal receivables process.
How do federal, state and local receivables differ?
The federal process is the standardized one. State, county and municipal receivables are financed routinely, but under whatever assignment rules the relevant jurisdiction and contract impose — which vary considerably and are not interchangeable with the federal route.
| Federal prime contracts | State and local contracts | |
|---|---|---|
| Legal route | Assignment of Claims Act — written assignment to a financing institution plus notice to the contracting officer, payment office and surety | Set by state or local procurement law and by the contract; some require agency consent, others follow ordinary commercial assignment |
| Who acknowledges | The contracting office returns an acknowledgement | Varies — the agency, a comptroller or treasurer's office, or in some cases no formal acknowledgement at all |
| Typical setup time | Typically 2–4 weeks | Varies widely by jurisdiction; budget more time rather than less |
| Partial assignment | Generally not available — the assignment covers the amounts due under the contract | Depends entirely on the jurisdiction and the contract |
| Payment timing rules | Federal prompt-payment rules apply once a proper invoice is accepted | Most states have prompt-payment statutes, but terms, exceptions and remedies differ |
| Main practical risk | Acceptance timing and invoice rejection, not ability to pay | The same, plus budget-cycle and appropriation timing |
Am I the prime or the sub — and why does it change everything?
Contractors frequently assume that working on a federal contract means they have a federal receivable. For a subcontractor, that is not the case. The agency owes the prime; the prime owes you. Your receivable is an ordinary commercial receivable and is underwritten on the prime's credit and payment behavior, not the government's.
| Prime contractor | Subcontractor | |
|---|---|---|
| Who owes you | The contracting agency | The prime contractor |
| Credit assessed | The agency — strong, but slow | The prime's commercial credit and its own cash position |
| Assignment route | Assignment of Claims for federal work; jurisdiction-specific rules for state and local | Ordinary commercial assignment with notice to the prime |
| Setup time | Typically 2–4 weeks for the federal acknowledgement | Usually faster — the same as any commercial account |
| Dominant risk | Acceptance timing, invoice rejection, withholding | Pay-when-paid clauses, the prime's own collection cycle, flow-down disputes |
| What to read first | The assignment clause and the acceptance criteria | The payment clause, the flow-down terms and the dispute mechanism |
How do I fund mobilization on a new award?
Mobilization is the hardest part of the cycle precisely because no receivable exists yet. The award is signed, the agency expects performance, and the first accepted invoice may be sixty to ninety days away. How you bridge it depends on whether you are selling services or products.
On services awards, the costs are predominantly people, and the answer is usually a receivables facility sized against the contract's expected billing run-rate, drawn as the first invoices are accepted, with the contractor funding the first cycle. On product awards — the classic government reseller or GSA schedule position — purchase order financing can pay the manufacturer or distributor directly against the agency's order, then convert to receivables financing once the goods are delivered and invoiced.
- Recruiting, onboarding and badging staff, including cleared personnel
- Security clearance processing and the payroll carried while it completes
- Standing up or relocating a facility, with the deposits and fit-out that implies
- Vehicles, tooling, IT equipment and software licenses specified in the award
- Bonding, insurance and any contract-specific coverage requirements
- The first 60 to 90 days of payroll before an invoice is accepted and paid
What does a financed agency invoice cost?
Government receivables are financed as accounts receivable financing, priced per 30 days rather than as a flat fee, which means the agency's payment speed is a direct input into the cost. The example below prices a federal services invoice at 1.5% for the first 30 days plus 0.75% for the following 15-day increment, collected on day 45.
A $250,000 accepted federal invoice financed at a 90% advance, 1.5% per 30 days plus 0.75% per additional 15 days, paid by the agency on day 45.
| Accepted invoice amount | $250,000 |
|---|---|
| Advance at 90% | $225,000 |
| Fee at 2.25% for 45 days | $5,625 |
| Reserve released when the agency pays | $19,375 |
| Total received | $244,375 |
You receive $244,375 of the $250,000 invoice at a total cost of $5,625, with $225,000 of it available roughly six weeks before the agency pays.
What goes wrong, and how do I avoid it?
The failure modes in government contract financing are consistent and almost all of them are process failures rather than credit failures. Knowing them in advance removes most of the delay.
- Invoicing before formal acceptance, or through the wrong portal, which restarts the clock
- Starting the assignment only once cash is already tight
- Finding a prohibition on assignment in the contract at the closing stage
- A subcontractor relying on an award announcement rather than a signed subcontract and an accepted deliverable
- Overlooking retainage or withholding and over-counting the financeable balance
- An existing blanket UCC filing that has to be subordinated or paid off before a funder can take position
- Unresolved federal tax liens, which affect lien priority and can stop a facility entirely
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Written and reviewed by the National Invoice Factoring funding team — specialists in receivables and trade finance since 2009.
