Complete Guide to Government Factoring

Get invoices for government contracts paid in days

Winning government projects and contracts is an exciting achievement for any company, but the thrill is likely to fade once you begin navigating the complexities of government payments. Whether due to regulations, delays, or administrative hurdles, many businesses find themselves waiting on government agencies to pay their invoices. It’s why they often turn to government factoring.

As small business owners ourselves, we get it — you need steady access to working capital to cover your operating expenses, such as making employee payroll or staffing up for big projects. Time you’d spend on managing slow payments from government agencies could be better spent focused on growth opportunities. With government invoice factoring, your invoices are paid ahead of net terms and the factor company manages the collection effort on your behalf.

Wondering if factoring government receivables is right for your business? We explore the pros and cons, as well as the step-by-step process for government contract factoring below, so you can make the most informed decision possible for your company.

What is Government Contract Factoring?

If you supply goods or services to the government, payment on your invoices can take months. Your business may not have the time or liquid assets to wait.
Government contract factoring, also known as government receivables financing or government contractor factoring, is a receivable financing option that is available to companies that have contracts with government agencies or departments, including the Federal Government. Under this arrangement, the company sells its outstanding invoices or accounts receivable to a factoring company in exchange for funding within days, instead of having to wait for the government agency to pay the invoice on net terms.
The factoring company then assumes the responsibility of collecting payment from the government agency, and once the payment is received, there’s no further obligation. Financing government receivables can be a valuable option if you need to access cash quickly in order to meet your operational or financial needs, eliminating the often-lengthy payment cycles associated with government contracts.

What are the Benefits of Government Invoice Factoring?

Government invoice factoring can offer several benefits for companies that have contracts with government agencies. Some of the key benefits of government contractor financing include:

  • Quick access to capital. Government contracts often involve lengthy payment cycles, which can put a strain on your business cash flow. By factoring invoices, you can access quick capital to help cover operational expenses, payroll, and other financial needs, without having to wait for payment.

  • Easy process. The best government contract financing companies use technology and other innovations to make the funding process quick and easy.

  • Flexible funding. Factoring arrangements can be customized to meet your needs, with the ability to factor specific invoices only when you need a boost of funding. This can offer greater flexibility than traditional financing options like bank loans or lines of credit.

  • Grow your business. By reducing the amount of time and resources needed to manage outstanding invoices and collections, government contract factoring services allow you to focus on your core business operations and increase productivity. 

  • Avoid bank hassles. Traditional bank financing often requires cumbersome applications and lengthy approval processes. Not to mention you’ll likely need a solid credit history (and definitely no bad credit!) in order to qualify. That’s not the case with government contract financing. 

  • No debt. Unlike business loans, factoring does not create debt on your balance sheet, which can be attractive if you are looking to avoid taking on additional debt.

  • No dilution. Factoring for government contracts does not involve giving away equity in your business to a funding partner. This means you can stay in control of your company while accessing a funding solution that meets your needs.

What are the Limitations of Government Invoice Factoring?

Government factoring is not without its limitations. Here’s what you need to know.

  • Not all invoices qualify. They must be less than 90 days old to be eligible for funding.

  • Concern about customer perception. Some government clients may view factoring as a sign of financial instability, but this isn’t always the case. Many successful businesses use factoring as a means to streamline cash flow, simplify the accounts receivable process, and cover cash flow shortages while growing their business. In the past, some factoring companies were aggressive with collections, leading to a poor perception of factoring. At FundThrough, we work with you before contacting your customer, and treat them like our own.

  • Perceived difficulty of recording in accounting. There’s a perception that accounting for factored receivables is difficult. Our step-by-step guide shows you how to record a business factoring transaction.

How Invoice Factoring Works for Government Contracts

Invoice factoring for government contracts works in a similar way to factoring for other types of invoices. Here’s a general overview of the process:

  1. Your business provides goods or services to a government entity and submits an invoice for payment.

  2. Instead of waiting for payment from the government agency, you sell the invoice to a factoring company for cash upfront. The factoring company typically advances a portion of the invoice value, typically around 80% to 90%. (FundThrough has 100% advance rates).

  3. The factoring company takes responsibility for collecting payment for the invoice from the government entity. Once the payment is received, the factoring company deducts its factoring fee and any other charges, and then pays you the remaining balance.

  4. You enjoy improved cash flow, greater flexibility, and less admin hassle any time you want. Cover everyday expenses or fund business growth on your terms.

There may be some additional requirements or limitations for factoring government invoices, depending on the agency involved and the terms of the contract. For example, some agencies may require the factoring company to be registered with them or limit the percentage of invoices that can be factored.

It’s important to carefully review the terms of your government contracts and any applicable regulations before factoring invoices. Working with a reputable and experienced factoring company can help ensure a smooth and successful arrangement.

Can Government Subcontractors Use Invoice Factoring?

It really depends on the factoring company. However, many government factoring companies won’t work with government subcontractors because a government agency isn’t the direct client.

Government Factoring Companies: What to Look For

Not all government factoring companies are created equal. When considering a government factoring company, here are some important factors to look for:

  • Experience with government contracts: Look for a factoring company that has extensive experience working with government agencies and understands the unique requirements and regulations involved. (FundThrough has this experience and factors invoices in both Canada and the U.S.)

  • Transparent fees: Make sure you fully understand the fees involved in the factoring arrangement, including any upfront costs, discount rate, and collection fees. Look for a factoring company that offers transparent and competitive rates.

  • Flexibility: Look for a factoring company that can tailor its services to meet your specific needs. Some factors make you factor all your invoices or have monthly minimums, but the best ones allow you to be selective about the invoices you fund. 

  • Quick turnaround time: Time is often of the essence when it comes to factoring government invoices. Look for a factoring company that can provide quick and efficient service, with a streamlined application process and funding within days.

  • Reputation: Research the factoring company’s reputation and read reviews from other businesses that have worked with them. Look for a company that is well-established, has a track record of success, and is respected in the industry.

  • Customer service: Look for a factoring company that provides excellent customer service with dedicated account management, and is responsive to your needs. You should feel comfortable asking questions and confident that you will receive prompt and helpful answers. 

How to Qualify for Government Receivables Factoring

Qualifying for government receivables factoring doesn’t rely on your credit score. It doesn’t matter if you are a small business just starting up or if you’ve been in business for years. But you must qualify in other ways.


See if you qualify for FundThrough’s innovative funding solution in just a couple of minutes.

Our Approach to Working with Different Industries

FundThrough pays invoices in days for a wide range of industries outside of this list as well.

Government Invoice Factoring FAQs

Your questions answered.

Invoice financing and factoring are both ways for businesses to get cash based on outstanding invoices, but there are some key differences between the two.

Invoice financing involves borrowing money against outstanding invoices as collateral. Essentially, your business takes out a loan from a lender and uses the unpaid invoices as collateral. You remain responsible for collecting payment on the invoices.


Factoring, on the other hand, involves selling the invoices to a third-party factoring company at a discount. The factoring company takes responsibility for collecting payment from the customers, and advances the invoice value upfront.

Technically factoring is not a loan. It is the purchase of your accounts receivable.

Although uncommon, some banks do offer invoice factoring. However, because many government contracts are lengthy, large-scale projects with large dollar amounts, banks might consider these contracts too risky to take on.

Sources: • 1. 

Simple. Intuitive. Government Invoice Factoring.

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