Assignment of Claims (Bank Financing)
Also known as: Assignment of Claims Act, assignment of proceeds, lender assignment
What you do here: Assign contract payments to a financing bank
At a Glance
- Who it's for
- Contractors borrowing against contract receivables
- What it does
- Assigns your right to payment to a bank/financing institution
- Statutory basis
- Assignment of Claims Act (31 U.S.C. 3727 / 41 U.S.C. 6305)
- Governing clause
- FAR 52.232-23, Assignment of Claims
- Cash-flow effect
- Unlocks a working-capital line secured by contract payments
What It Is
The Assignment of Claims Act lets a federal contractor assign the amounts due (or to become due) under a contract to a bank, trust company, or other financing institution as security for a loan. FAR Subpart 32.8 and the clause at FAR 52.232-23 implement it. Once a proper assignment is made and the government is notified, contract payments are directed to the assignee (the lender) instead of to you — which is exactly what makes a lender comfortable extending a working-capital line against your government receivables. The assignment generally must cover all unpaid amounts under the contract, must go to a single financing institution (which may act as agent for others), and can't be to more than one party except through such an agent. It's a financing mechanism, not a change in who performs the contract.
When It’s Used
- When a contractor needs a working-capital loan or line of credit secured by its federal contract payments.
- On contracts other than those the contracting officer has determined not assignable (assignment is broadly available).
- When a bank requires the government to redirect payments to it as a condition of financing.
- Especially useful for growing small primes that are cash-constrained between award and payment.
Key Features
| Feature | What It Means |
|---|---|
| Assign to a financing institution | The assignee must be a bank, trust company, or other financing institution — you can't assign contract proceeds to just anyone. |
| All amounts, single assignee | The assignment must cover all unpaid amounts under the contract and generally go to one financing institution (which may act as agent for a group of lenders). |
| Notice to the government | The assignment and a notice must be filed with the contracting officer, the payment office, and the surety, so payments are redirected to the assignee. |
| No-setoff provision | Where the contract includes it, a 'no-setoff' commitment can protect the lender from certain government offsets against the assigned payments — a key point for financing. |
| Doesn't transfer performance | Assignment moves the right to be paid, not the obligation to perform — you still owe full contract performance. |
The SDVOSB Cash-Flow Angle
Assignment of claims is one of the few tools that directly attacks the small-prime cash-flow gap: it turns your federal receivables into collateral a bank will actually lend against, funding payroll and materials in the window before payment arrives. For an SDVOSB scaling into larger awards, understanding assignment (and the no-setoff provision lenders look for) can be the difference between a financeable contract and one you have to fund from retained earnings. Coordinate early with both your lender and the contracting officer so the notice is filed correctly and payments route cleanly.
How to Get Paid
- Confirm the contract is assignable (most are; the CO can designate exceptions).
- Arrange the financing with a bank or financing institution and execute the assignment instrument.
- File the assignment and notice with the contracting officer, the payment office (disbursing officer), and any surety.
- Check whether the contract includes a no-setoff commitment that protects the assigned payments.
- Understand that payments will then be disbursed to the assignee (lender), who applies them to your loan.
Watch Out For
- You can generally assign only to a single financing institution and must assign all unpaid amounts under the contract.
- Without a no-setoff provision, the government may still offset debts against the assigned payments, undercutting the lender's security.
- Assignment redirects payment to the lender — model that into your cash management so you're not surprised.
- Improperly filed notices (wrong office, missing surety) can render the assignment ineffective against the government.
Run the Numbers
Frequently Asked
Can I use my federal contract to get a bank loan?
Yes. Under the Assignment of Claims Act (implemented in FAR Subpart 32.8 and the clause at FAR 52.232-23), you can assign the amounts due under a federal contract to a bank or other financing institution as security for a loan. The government then pays the assignee (the lender) directly, which is what lets banks extend working-capital lines secured by your government receivables.
What is a no-setoff provision and why does it matter?
A no-setoff commitment, when included in a contract, limits the government's ability to offset unrelated debts against the payments that have been assigned to a lender. It matters because it protects the lender's security — without it, the government could reduce the assigned payments to collect other amounts you owe, weakening the collateral and making financing harder to obtain.
Primary Sources
- FAR Subpart 32.8 — Assignment of Claims
- FAR 52.232-23 — Assignment of Claims (clause)
- 41 U.S.C. § 6305 — Prohibition on transfer of contract (assignment exception)
Plain-English reference, not legal, accounting, or financial advice. Payment and financing terms are set by each contract, and the FAR is amended from time to time — always read the actual contract clauses and invoicing instructions, confirm the applicable procedures with the contracting officer and payment office, and consult qualified counsel or an accountant for your specific situation before relying on this.
Change log (1)
- LaunchedPublished the federal contract financing & payment methods reference covering how an SDVOSB gets paid — invoice payment and the Prompt Payment Act (FAR Subpart 32.9 / 52.232-25), progress payments based on cost (FAR Subpart 32.5 / 52.232-16), performance-based payments (FAR Subpart 32.10 / 52.232-32), commercial product & service financing (FAR Subpart 32.2 / 52.232-29 & -30), construction progress payments and retainage (FAR 32.103 / 52.232-5 & -27), cost-reimbursement and T&M public vouchers (FAR 52.216-7 / Subpart 42.7), payment by electronic funds transfer through SAM (FAR Subpart 32.11 / 52.232-33), electronic invoicing via WAWF and IPP (FAR 32.905 / DFARS 252.232-7003), assignment of claims for bank financing (FAR Subpart 32.8 / 52.232-23), and contract debts and government offsets (FAR Subpart 32.6 / 52.232-17) — each with an at-a-glance quick-facts card, a when-it's-used list, a key-features table, an SDVOSB cash-flow angle, a how-to-get-paid checklist, watch-outs, FAQPage, Article, Dataset, and BreadcrumbList structured data, primary-source citations, and cross-links into the glossary, how-to guides, FAQ, contract types, clauses, forms, thresholds, and the price-to-win and limitations-on-subcontracting calculators.