Plain-English definitions
Government Contract Financing Glossary
From advance rate to assignment of claims, here are the key terms government contractors run into when financing their receivables — explained without the jargon.
Apply for Funding- Invoice Factoring
- Selling your unpaid invoices to a funding company at a small discount in exchange for immediate cash. It's not a loan — it advances money you've already earned against receivables.
- Advance Rate
- The percentage of an invoice's value paid to you up front. Encore advances up to 90%, with the remainder (less a fee) paid when the agency settles the invoice.
- Assignment of Claims
- A federal mechanism (under the Assignment of Claims Act) that lets a contractor direct payment on a government contract to a financing company, so the agency pays the funder rather than the contractor.
- Net-30 / Net-60 / Net-90
- Payment terms specifying how many days a customer has to pay after invoicing. Federal agencies commonly pay on Net-30 to Net-90, creating the cash-flow gap that financing bridges.
- Receivables (Accounts Receivable)
- Money owed to your business for work already delivered but not yet paid. Receivables are the asset that invoice factoring advances against.
- Recourse Factoring
- A factoring arrangement where your business remains responsible if the customer ultimately doesn't pay the invoice. It typically carries lower fees than non-recourse.
- Non-Recourse Factoring
- A factoring arrangement where the funder absorbs the loss if the customer fails to pay due to insolvency. It shifts more risk to the funder, usually at a higher fee.
- Prime Contractor
- The business that holds the contract directly with the government and is ultimately responsible for delivering on it. Primes often manage subcontractors beneath them.
- Subcontractor
- A business hired by a prime contractor to perform part of a government contract. Subcontractors invoice the prime and can also use financing to bridge payment terms.
- IDIQ (Indefinite Delivery, Indefinite Quantity)
- A contract vehicle that lets an agency order an indefinite amount of work over a set period through individual task or delivery orders, rather than one fixed scope.
- GSA Schedule
- A long-term governmentwide contract (also called Multiple Award Schedule, or MAS) administered by the General Services Administration that pre-negotiates pricing so agencies can buy commercial products and services more easily.
- Progress Payments
- Partial payments made by the government as work progresses on a contract, rather than a single payment at completion — common on larger or longer-term awards.
- Lockbox
- A dedicated account, often controlled by the funder, where customer payments are received and processed. In factoring, agency payments may be directed to a lockbox to settle advances.
- Reserve
- The portion of an invoice not advanced up front (for example, the 10% not covered by a 90% advance rate). The reserve, less the factoring fee, is released to you once the customer pays.
- Factoring Fee
- The transparent charge for advancing your invoice, typically a percentage of the invoice amount. It's quoted up front and deducted from the reserve when the invoice is paid.
- Working Capital
- The cash a business has available to cover day-to-day operations — payroll, materials, subcontractors. Financing receivables is a common way to free up working capital.
- DSO (Days Sales Outstanding)
- The average number of days it takes to collect payment after a sale. High DSO is common in GovCon because of long Net terms, which is exactly the gap factoring closes.
- Mobilization
- The up-front costs of standing up a contract — hiring, equipment, materials, setup — incurred before any invoice is paid. Mobilization is a frequent driver of early cash-flow strain.
- Bonding
- A surety guarantee (bid, performance, or payment bond) assuring the government a contract will be completed. Bonding capacity is often tied to working capital and balance-sheet strength.
- Prompt Payment Act
- A federal law requiring agencies to pay contractors within set timeframes (generally 30 days) and to pay interest penalties on late payments.
- Task Order
- An individual order for specific work issued under a broader contract vehicle such as an IDIQ. Each task order can carry its own invoices and its own financing needs.
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