The short answer
Factoring federal receivables is usually priced per 30 days the invoice is unpaid, with typical quotes from about 1% to 3.5% per period. Advances usually run from 75% to 90% of the invoice. Because a federal agency is the party that owes the money, rates tend to sit toward the low end of the factoring market.
On a $120,000 invoice at 1.75% per 30 days, paid within 30 days, the fee is $2,100. If payment slips to 45 days, the fee doubles to $4,200 under per-period pricing.
The practical cost of government factoring is less about the rate and more about setup. Under the Assignment of Claims Act, the financing company must file a notice of assignment with the contracting officer and the paying office before it is paid directly, and that process takes time and has conditions that ordinary commercial factoring does not.
What government contract factoring costs, line by line
| Cost item | Typical range | How it works |
|---|---|---|
| Factoring rate | about 1% to 3.5% per 30 days | Lower for prime contracts with federal agencies |
| Advance rate | 75% to 90% | Of each approved invoice |
| Reserve | 10% to 25% | Released when the agency pays, minus the fee |
| Setup and assignment fees | one-time, varies | Covers contract review and filing the notice of assignment |
| Transfer fees | small per transfer | ACH or wire |
| Minimum term or volume | varies | Assignment setup makes very short programs uncommon |
These are typical quotes, not offers. Pricing depends on the agency, the contract type, whether you are a prime or a subcontractor, and your billing history.
The Assignment of Claims Act in plain terms
You cannot simply sell a federal invoice the way you would a commercial one. The Assignment of Claims Act, implemented in Subpart 32.8 of the Federal Acquisition Regulation, lets a contractor assign payments to a bank, trust company or other financing institution, subject to conditions. Among them, the contract generally must be for $1,000 or more, the assignment generally covers all amounts payable under the contract, payments generally cannot be assigned to more than one party, and the financing company must send written notice and a copy of the assignment to the contracting officer, the surety if any, and the paying office.
Until the notice is filed and acknowledged, the agency keeps paying you. That is why many factors fund the first invoices on a contract more conservatively, or ask you to route payments to a controlled account while the assignment is processed.
Subcontractors are in a different position. A subcontractor is owed by the prime contractor, not the government, so a subcontractor's invoice is ordinary commercial factoring priced on the prime's credit.
A worked example
A small IT services firm holds a federal task order and bills $120,000 at the end of a month. The assignment is in place, the agency accepts the invoice, and payment arrives within 30 days. The factor advances 85% at 1.75% per 30 days, counting any part of a period as a full period.
| Step | Amount |
|---|---|
| Invoice | $120,000 |
| Advance paid after acceptance (85%) | $102,000 |
| Reserve held back (15%) | $18,000 |
| Fee (1.75% × 1 period) | $2,100 |
| Reserve released when the agency pays | $15,900 |
| Total received | $117,900 |
Under the Prompt Payment Act, an agency generally has 30 days after receiving a proper invoice to pay, and owes interest when it pays late. But an invoice rejected for a missing field or a mismatched contract line restarts that clock. If a rejection pushes payment to day 45, the fee in this example becomes $4,200.
Run your own numbers
The calculator below starts with the example above. Enter your invoice, the advance and rate from your quote, and the days your agency actually takes after you bill.
Your results
- Cash today (advance)
- $102,000.00
- Reserve held back
- $18,000.00
- Total cost (factoring fee)
- $2,100.00 (1.75% of invoice)
- Rebate when your customer pays
- $15,900.00
Fee periods charged: 1.
Estimates only. Actual rates and advances are set by each factoring company.
What drives your rate
Prime or subcontractor. Prime contracts with federal agencies price lowest. Subcontract invoices are priced on the prime's credit, which can be much weaker.
Federal, state or local. Federal payers are reliable and bound by the Prompt Payment Act. State and local governments set their own payment rules, often pay more slowly, and may restrict assignment differently.
Setoff risk. The government can offset money you owe it, such as tax debts or overpayments on another contract, against what it owes you, unless the contract contains a no-setoff commitment. Factors price that risk and check for federal debts before funding.
Invoice quality. Invoices submitted correctly through the agency's electronic invoicing system, with matching contract line items and receiving reports, get paid faster.
Contract size and remaining value. Larger contracts with significant value left to bill justify the setup work and earn better pricing.
Your performance history. Past performance problems, disputes or terminations raise the rate or reduce the advance.
When factoring is not the right fit
Because federal payers are reliable, factoring government invoices can be inexpensive per period. It is less attractive in a few situations:
- Small or short contracts. The assignment process takes time and paperwork, so a single small invoice may not justify the setup.
- Contracts that already pay quickly. If your agency reliably pays in two weeks, the cash flow gain may not be worth the fee.
- Contractors with federal debts. Setoff can reduce payments, and many factors will not fund until debts are resolved.
Government contractors with steady receivables and good books can also look at bank lines of credit, including government-guaranteed small business loans, which often cost less than factoring once you qualify. Factoring is most useful when a contract is growing faster than your working capital.
How to compare quotes
- Ask whether the factor files the notice of assignment, how long it takes, and what it charges.
- Get the rate per period and how partial periods are counted.
- Ask how the factor funds invoices before the assignment is acknowledged.
- Confirm how setoff is handled and whether you need a no-setoff clause.
- List every fee and minimum in writing.
The government contractors hub explains assignment conditions and setoff in more depth and lists factors that take government receivables. For the general picture, see what invoice factoring costs.
Frequently asked questions
What does government contract factoring cost?
Typical quotes run from about 1% to 3.5% per 30 days, with advances of 75% to 90%. Federal invoices usually price lower than commercial ones because the government is a reliable payer.
Can I factor a federal contract without telling the agency?
Not if the factor is to be paid directly. Under the Assignment of Claims Act, the financing company files a notice of assignment with the contracting officer and the paying office, so the agency knows.
How long does the government take to pay?
Under the Prompt Payment Act, federal agencies generally pay within 30 days of receiving a proper invoice and owe interest when they pay late. Rejected or incomplete invoices restart the clock.
Can subcontractors on government contracts use factoring?
Yes, but a subcontractor's invoice is owed by the prime contractor, so it is factored as a commercial receivable and priced on the prime's credit. The Assignment of Claims Act process does not apply.
What is setoff and why does it matter?
Setoff lets the government reduce a payment to you by money you owe it. If it happens, the factor collects less than expected, so factors check for federal debts and may ask about a no-setoff clause in your contract.