It is very common for government contractors to use invoice factoring to grow their business. Due to the ease of availability, unlimited borrowing power, and how quickly it can be put in place, contractors rely on accounts receivable financing when starting up a contract.
But like everything else with government contracting, using invoice factoring must conform to contract regulations. Typically a contract will state that the work to be performed cannot be assigned to another party, but rarely will the contract preclude assigning the proceeds (payments) of finished work to a third party, like a factoring company.
Using a factoring company to finance a government contract, requires the Notice of Assignment or NOS. Any prime contractor (billing the government directly) with a FAR (Federal Acquisition Regulation) contract will need to have the contract amended to put the NOS in place. Contract regulations require that in order for payments to be made to a third party – the factoring company, an assignment has to be in place that allows the proceeds of the contract to be sent to that third party.
The NOS is normal course of business paperwork and factors can prepare them. The contract officer has to sign off on the NOS. By giving them a heads up, payments will not get bogged down waiting for the paperwork to go through proper channels. The actual content of the NOS is standard so there should not be any legal hurdles.