The Assignment of Claims Act, Explained

The Assignment of Claims Act is the federal law that allows a government contractor to assign its right to be paid under a contract to a financing institution. It lives in two places in the U.S. Code: 31 U.S.C. 3727 (assignment of claims against the United States) and 41 U.S.C. 6305 (the procurement-side counterpart). FAR Subpart 32.8 turns both into the rules contracting officers follow.

Without the Act, claims against the United States generally cannot be transferred to a third party. With it, a contractor can direct contract payments to a bank or funding partner, which is what makes invoice factoring and receivables financing possible on federal work.

FAR 32.802 lists the conditions an assignment must meet. In plain English:

• The contract specifies payments totaling $1,000 or more.
• The assignee is a bank, trust company or other financing institution, including any federal lending agency.
• The contract does not prohibit assignment.
• Unless the contract expressly says otherwise, the assignment covers all unpaid amounts under the contract, is made to only one party (or to one party acting as agent or trustee for several lenders), and cannot be assigned again.
• The assignee files a written notice of assignment with a true copy of the instrument of assignment with the contracting officer, any surety on the contract's bonds, and the disbursing officer named in the contract.

Once the instrument of assignment is signed, the financing partner sends the notice package to the three parties above. FAR 32.805 describes the procedure and provides sample notice formats.

The contracting officer acknowledges receipt and the payment office updates its records, so future payments under the contract go to the assignee instead of the contractor. The assignee then remits the balance to you, less its fee. Because the instructions run through the government's own offices, the arrangement protects all three parties. A specialized GovCon funding partner prepares and files this paperwork for you.

Most contracts include FAR 52.232-23, Assignment of Claims, which permits assignment under the Act and sets the terms. Some contracts instead include FAR 52.232-24, Prohibition of Assignment of Claims, which blocks it. Check your contract's clause list (Section I, or the clause list on a commercial contract) before you set up financing.

On orders under a schedule or IDIQ vehicle, look at both the base contract and the order. The payment clause and the paying office can differ by order, and the notice has to reach the office that actually pays.

An assignment redirects payment, but the government can generally still reduce a payment to collect certain debts the contractor owes it. In limited cases a contract carries a no-setoff commitment under FAR 32.803(d), which protects the assignee from those reductions, but most contracts do not include one.

That is one reason a funding partner reviews your contract, your SAM.gov record and any outstanding federal debts before advancing funds. It isn't a hurdle for most contractors; it simply keeps the arrangement clean.

These terms get used interchangeably, and the differences matter for government work:

• Pledging accounts receivable uses your receivables as collateral for a loan. You keep collecting from your customers and repay the lender.
• Assigning accounts receivable transfers the right to collect to the lender or factor. On a federal contract, that is an assignment of claims, and it must follow the Act and FAR 32.8.
• Factoring is the sale of the receivable. The factor advances most of the value now and collects from the payer. Factoring a federal invoice therefore uses an assignment of claims.

Because the Act is long-established and built into the FAR, financing federal receivables is a routine, compliant transaction rather than a workaround. It is the legal backbone of government invoice factoring.

Encore advances 80 to 90% of approved invoice value and handles the assignment paperwork. Most clients onboard in two to three weeks, and once your account is active, each invoice is funded the same or next day. See how government contractors get paid for the payment cycle this financing bridges.