Guides / Federal Contractors
How the Assignment of Claims Act works when you finance federal receivables
The Assignment of Claims Act lets a federal contractor assign the payments due under a contract to a bank or other financing institution, which is what allows a lender to collect directly from the government. The assignment only works against the government once the lender sends written notice and a true copy of the assignment to the contracting officer, the disbursing officer and any surety on the contract.
Why lenders care about this law
When a bank lends against your receivables, it takes a lien on them. Against a commercial customer, that lien plus a notice to pay the lender is usually enough. Against the federal government it is not. Claims against the United States can only be assigned under the conditions set by the Assignment of Claims Act, and until those conditions are met, the government can keep paying you instead of your lender.
For a lender, that means federal invoices only count as fully protected collateral once the assignment is properly in place. For you, it means the assignment is often the step that decides how fast a line closes and how much of your receivables a lender will advance against.
The conditions in the regulation
The Federal Acquisition Regulation, at section 32.802, sets out the conditions. A contractor may assign moneys due or to become due under a contract only if all of them are met.
| Condition | What it means in practice |
|---|---|
| The contract specifies payments of $1,000 or more | Almost every contract worth financing qualifies. |
| The assignment goes to a bank, trust company or other financing institution | Including any federal lending agency. The assignee is the lender, not a general creditor. |
| The contract does not prohibit assignment | Some contracts include a clause prohibiting assignment. Check every contract before you count it as collateral. |
| It covers all unpaid amounts, goes to one party and is not assigned further | Unless the contract expressly permits otherwise. A group of lenders can share one assignment through a single agent. |
| Written notice is sent to three parties | The contracting officer or agency head, the surety on any bond, and the disbursing officer named in the contract, each with a true copy of the assignment. |
Summarized from FAR 32.802. The regulation text controls.
Task orders can be assigned one by one
Under a requirements or indefinite quantity contract that lets several government activities place orders and make payments, the regulation allows amounts due on individual orders of $1,000 or more to be assigned. For contractors working under contract vehicles with many task orders, that lets financing follow the orders that actually generate invoices.
Setoff: the risk most owners never hear about
Assignment does not automatically protect the lender from what you owe the government. Under FAR 32.803, when an assigned contract does not include a no setoff commitment, the government may apply against payments to the lender any liability you owed the government that existed when the notice of assignment was received, even if it was not yet due.
A no setoff commitment can only be included in contracts of designated agencies, after a formal determination of need. Most small contractors will not have one. That is why lenders look hard at federal tax balances, overpayment claims and contract disputes before they close. A liability you resolve before the notice is filed cannot reduce your lender's collections later.
How the filing works, step by step
- Confirm each contract allows assignment. Read the clauses and note any prohibition before the lender sizes the line.
- Sign the assignment with your lender. It covers all unpaid amounts under each contract being financed.
- The lender sends the notices. Written notice and a true copy of the assignment go to the contracting officer, the disbursing officer and any surety.
- Confirm receipt. Track acknowledgment from each office, because the government's obligation to pay the lender runs from the notice.
- Repeat for new contracts. A new contract, or a new assignable order, needs its own assignment and notice before it counts as collateral.
Illustrative example. Not a specific client or transaction.
A services contractor has $2.4 million in receivables across three federal prime contracts and asks a bank for a line.
- Contract A, $1.3 million outstanding. Assignment permitted, notices filed. Counts as eligible.
- Contract B, $700,000 outstanding. Assignment permitted, but notice never reached the disbursing office. Excluded until it does.
- Contract C, $400,000 outstanding. The contract prohibits assignment. Excluded.
Only $1.3 million of $2.4 million counts. At an 85% advance rate, availability is about $1.1 million instead of about $2 million. Fixing the missed notice on Contract B adds roughly $600,000 of availability without any change to the business.
Mistakes that slow federal contractor financing
- Filing on some contracts and not others. Each contract stands alone. Unassigned contracts usually do not count toward the borrowing base.
- Missing one of the three notice parties. The disbursing office is the one most often skipped, and it is the office that actually pays.
- Treating subcontract invoices as government receivables. If you are paid by a prime contractor, the Act does not apply. Those are commercial receivables, underwritten on the prime's credit.
- An old assignment to a prior lender. Moving to a new lender means a reassignment or release and new notices, which takes time to coordinate.
- Unresolved federal liabilities. Tax balances or overpayment claims can be set off against payments to the lender, so lenders reduce availability or decline until they are resolved.
A note on current regulations
Federal agencies have been applying revised contract financing text to FAR Part 32 during 2026 as part of the government's overhaul of the FAR. The Assignment of Claims Act itself is a statute and has not changed. Confirm that your lender's assignment and notice forms track the current text at your contracting agency.
See what your federal receivables could support
Our cash gap calculator estimates the cash your contracts tie up and a rough line size.
General information, not legal, tax or financial advice. Examples are illustrative. Terms vary by lender, and all financing is subject to lender approval.
What owners ask us first.
Does the government have to approve an assignment of claims?
The contract must not prohibit assignment, and the lender must send written notice and a true copy of the assignment to the contracting officer, the disbursing officer and any surety. The contracting officer acknowledges the notice. Without proper notice, the government is not bound to pay the lender.
Can a non bank lender take an assignment of claims?
The regulation allows assignment to a bank, trust company or other financing institution, including federal lending agencies. Whether a particular finance company qualifies is a question for the lender and its counsel.
Can I assign payments I receive as a subcontractor?
No. The Act covers claims against the United States. If a prime contractor pays you, those are commercial receivables, and a lender underwrites them on the prime contractor's credit.
What happens if I switch lenders?
Under FAR 32.803, an assignment made to a financing institution can be reassigned to another qualifying institution if the conditions continue to be met. In practice the old lender releases its interest and new notices go to each office, so plan the timing carefully.
What is a no setoff commitment?
A contract term that stops the government from reducing payments to the lender because of debts the contractor owes the government. It is available only in contracts of designated agencies after a formal determination, so most small contractors do not have one.
How much can I borrow against my receivables?
How lenders turn total receivables into a borrowing base, from eligible receivables and advance rates to reserves and the line limit.
Read the guide →What do lenders exclude from a borrowing base?
The receivables lenders will not advance against, why each exclusion exists, and what an owner can fix before applying for an asset based line.
Read the guide →