The Assignment of Claims Act, Explained

The Assignment of Claims Act (31 U.S.C. 3727 and 41 U.S.C. 6305, implemented in FAR Subpart 32.8) is the federal law that allows a government contractor to assign the right to be paid under a contract to a financing institution — typically a bank or a factoring company.

Without this law, payments under a federal contract generally can't be transferred to a third party. With it, a contractor can pledge its receivables to a funding partner, which is precisely what makes invoice factoring and accounts-receivable financing possible in the government space.

To assign a claim, the financing partner files a Notice of Assignment with the relevant parties — usually the contracting officer, the disbursing (payment) office, and the surety if there is one. The notice tells the government to direct payment to the assignee (the financing partner) instead of the contractor.

Once the notice is acknowledged, the government pays the financing partner directly when the invoice comes due. This three-party arrangement — contractor, government, financing partner — is what protects everyone and keeps the funding compliant with federal rules.

The Assignment of Claims Act actually lives in two sections of the U.S. Code. 31 U.S.C. § 3727 governs the assignment of claims against the United States — it sets the conditions under which a contractor can legally transfer the right to be paid to a bank, trust company, or other financing institution. 41 U.S.C. § 6305 mirrors it on the procurement side, and FAR Subpart 32.8 turns both into the day-to-day rules contracting officers follow.

31 U.S.C. § 3728 is the companion provision: it addresses the government's right to offset (withhold) against an assigned claim in certain circumstances. In practice, a 'no-setoff' commitment in the contract — common on most federal awards — protects the financing partner so the assignment is clean. You don't need to memorize the citations; you just need a funding partner who files the Notice of Assignment correctly under § 3727 so the government pays the right party.

These terms are often used interchangeably, but there's a useful distinction. 'Assignment of receivables' is the general commercial concept of pledging money you're owed to a lender. 'Assignment of claims' is the specific federal version — assigning a claim for payment against the United States government — which is only possible because 31 U.S.C. § 3727 carves out an exception to the general rule that claims against the government can't be transferred.

For a government contractor, the two converge: when you factor a federal invoice, you're assigning a receivable that happens to be a claim against the government, so it must follow the Assignment of Claims Act's Notice of Assignment process. That federal-specific step is exactly why you want a funding partner who specializes in GovCon rather than a generic commercial factor.

Because the Assignment of Claims Act is well-established and built into the FAR, financing your federal receivables is a routine, compliant transaction — not a workaround. A specialized GovCon funding partner handles the Notice of Assignment paperwork for you.

The practical result: you can convert your earned-but-unpaid government invoices into working capital without waiting on the federal payment cycle, all within a legal framework Congress created specifically for this purpose. That's what government invoice factoring is — and it's the most direct way to close the Net-30-to-90 gap.