Government Invoice Factoring, Explained

Invoice factoring is a way to get paid now for work you have already done. Instead of waiting weeks or months for a customer to pay, you sell the invoice to a factoring company, which advances most of its value right away. When the customer pays, the factor sends you the remaining balance, less its fee.

It is not a loan. You are accelerating money you have already earned, so there is no fixed monthly payment and no new debt on your balance sheet.

Factoring government contracts follows the same idea with one federal-specific step: the payment is redirected under the Assignment of Claims Act. A typical setup looks like this:

• Apply and get pricing. You share your contracts and an accounts-receivable aging report. Encore responds within 24 hours.
• Onboard. The funding partner reviews your contracts and SAM.gov record and files the Notice of Assignment with the contracting officer and the paying office. Most Encore clients onboard in two to three weeks.
• Invoice as usual. You submit invoices through PIEE/WAWF, IPP or the system your contract requires.
• Get your advance. Once your account is active, each approved invoice is funded the same or next day, at 80 to 90% of its value.
• The agency pays. Payment goes to the assignee. You receive the reserve (the remaining balance), less the fee.

Two numbers define a factoring arrangement. The advance rate is the share of each invoice you receive up front; Encore advances 80 to 90% of invoice value, with no fixed cap, so your available capital grows with your billing. The fee is a percentage of the invoice, charged for the advance and the collection service.

Government receivables generally price better than commercial ones because the payer is the U.S. government. What you pay depends on volume, payment timing and terms, so ask for an all-in quote. Our factoring rate calculator shows how the advance, reserve and fee work out on a sample invoice.

Commercial factors are used to notifying a customer and collecting from them. Federal receivables add rules a general factor may not handle well:

• The Notice of Assignment under FAR 32.8 must reach the contracting officer, any surety and the disbursing office, or payments keep going to the contractor.
• Invoices move through government systems with their own acceptance steps, such as receiving reports in PIEE.
• Payment timing follows the Prompt Payment Act, so collections focus on clean invoices and acceptance rather than chasing a customer. See how government contractors get paid.
• Contract modifications, options and new task orders each need to be tracked so new billings stay covered.

With recourse factoring, you are responsible if an invoice ultimately goes unpaid. With non-recourse factoring, the factor absorbs that credit risk in defined situations. On federal receivables the payer's credit is strong, so the practical risk is less about non-payment and more about disputes, rejected invoices and offsets. Read how each is handled in any agreement you sign.

Because underwriting leans on the government's ability to pay rather than only your balance sheet, factoring is often available to newer and fast-growing contractors that a bank would decline.

A bank loan or line of credit is debt with a fixed ceiling, covenants and repayment terms, underwritten mostly on your financial history. Factoring is tied to your receivables, so it expands as you win and bill more work.

Many contractors use both. See factoring vs. a line of credit and factoring vs. a bank loan for side-by-side comparisons.

It fits any contractor whose costs come due before the agency pays: staffing firms making weekly payroll, construction contractors waiting on progress payments, IT and professional-services firms ramping up new task orders, and small businesses winning their first large award.

When you compare providers, the buyer's guide to government factoring companies lists the criteria that matter.