Can government invoices be factored?

Yes. Payments under federal contracts can be assigned to a financing institution under the Assignment of Claims Act, subject to its conditions.

Why is government factoring cheaper?

Because the customer is very unlikely to default. Fees mainly reflect how long the agency takes to pay.

What does factoring a $150,000 government invoice cost?

At an illustrative 3% fee, $4,500, leaving $145,500 in total.

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Best invoice factoring for government contractors in 2026

The best invoice factoring for a government contractor is a program from a factor experienced with federal receivables, because assigning government payments involves specific legal steps. Fees tend to be low since the customer is a government agency. Established contractors can move to an asset-based line, and the SBA Contract CAPLine finances costs before any invoice exists.

By the WithFunded team · Published November 11, 2026 · Rates as of November 2026

The short list

Best overall: Invoice factoring
Best for larger contractors: Asset-based line of credit
Best before the first invoice: SBA CAPLines (revolving line)
Best for a single delayed payment: Spot factoring

The 4 best options, ranked

1. Invoice factoring Best overall

Agency credit risk is minimal, so factors advance readily and at competitive fees. Experience with assignment of claims paperwork matters.

Watch for: Your customers pay the factor directly, and with recourse factoring you still carry non-payment risk. Invoice factoring guide →
2. Asset-based line of credit Best for larger contractors

A contractor with steady government billings can borrow against them on a revolving basis at lower cost.

Watch for: Expect regular reporting on receivables and inventory, and a limit that moves with them. Business line of credit guide →
3. SBA CAPLines (revolving line) Best before the first invoice

A Contract CAPLine funds labor and materials to start performance, which factoring cannot do because nothing has been billed.

Watch for: Draws are tied to the season, contract, or receivables the line was approved for. SBA loan guide →
4. Spot factoring Best for a single delayed payment

One invoice stuck in an agency's payment system can be factored alone.

Watch for: Convenient for a one-off gap, expensive as a habit. Invoice factoring guide →

Side-by-side comparison

Option	Verdict	Cost basis	Funding speed	Qualifies on
Invoice factoring	Best overall	A factoring fee on invoice value, not an APR	Days	Your customers' creditworthiness more than your own
Asset-based line of credit	Best for larger contractors	Interest on what you draw; the limit follows a borrowing base of receivables and inventory	Weeks to set up	The quality of your receivables and inventory
SBA CAPLines (revolving line)	Best before the first invoice	SBA-capped rates on a revolving line of up to $5 million	Weeks to months	A documented seasonal cycle or specific contracts to borrow against
Spot factoring	Best for a single delayed payment	A higher fee per invoice than a contract facility	Days	One invoice at a time from a creditworthy customer

What it costs

Factoring is priced as a fee on the invoice, not an APR. You get an advance up front, then the balance minus the fee once your customer pays. At an illustrative 85% advance and 3% fee:

Invoice value	Advance up front	Factoring fee	You receive in total
$30,000	$25,500	$900	$29,100
$150,000	$127,500	$4,500	$145,500
$500,000	$425,000	$15,000	$485,000

Illustrative advance rate and fee. Actual terms depend on your invoice volume, your customers, and how long they take to pay. WithFunded calculation.

What lenders look at

The contract terms and whether you are the prime contractor.
Whether the contract permits assignment of payments.
Invoice approval status in the agency's payment system.

Mistakes to avoid

A factor unfamiliar with federal assignment requirements. Mistakes delay funding.
Factoring a subcontract invoice on the assumption it is a government receivable. The debtor is the prime contractor.

Frequently asked questions

Can government invoices be factored?: Yes. Payments under federal contracts can be assigned to a financing institution under the Assignment of Claims Act, subject to its conditions.
Why is government factoring cheaper?: Because the customer is very unlikely to default. Fees mainly reflect how long the agency takes to pay.
What does factoring a $150,000 government invoice cost?: At an illustrative 3% fee, $4,500, leaving $145,500 in total.

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How we ranked these options

This guide ranks types of financing, not individual lenders. Each option is ordered by how well it fits the need described on this page, judged on four things in this order: whether the structure matches how the money will be used and repaid, total cost, funding speed, and how hard it is to qualify. Cost figures are WithFunded calculations from published rate inputs as of November 2026: the bank prime loan rate from the Federal Reserve, the SBA maximum-rate schedule, and Federal Reserve survey data. The method follows our 2026 SMB Financing Cost Report, whose own figures use June 2026 rates.

WithFunded is a financing marketplace, not a lender. Our 2-minute form suggests a product type from the families we cover, and a funding partner reviews the request. Not every structure named in this guide is available through WithFunded: options such as SBA microloans, USDA farm loans, bank loans, and seller financing are ones you would pursue directly with the provider. They are listed because leaving out a good fit would make the ranking less useful.

Related guides

The top-ranked option on this page is invoice factoring because it fits the most common version of this need. Your own best fit depends on your revenue, time in business, credit, and how fast you need the money.

Disclaimer. WithFunded and Big Think Capital are a financing marketplace; we are not the direct lender and do not guarantee funding, approval, rates, or terms. Everything on this page is a representative example only — not an offer or a commitment to lend, and not financial advice. Actual rates, fees, payments, and terms are set by the funding lender and depend on your business, credit, and the product. Where required by state law, the lender provides cost-of-financing disclosures before any agreement is signed.