The Government Owes You $80,000. Your Payroll Is Friday. Now What?
TL;DR — Key Facts
- →Government invoice factoring rates: 1.5%–3% per 30 days (lower than commercial AR because federal payment is guaranteed). Cost on an $80,000 Net-60 invoice: $2,400–$4,800.
- →Advance rate: 80%–90% of invoice face value, funded in 24–48 hours after the Notice of Assignment is filed.
- →The Assignment of Claims Act (41 U.S.C. § 6305) requires formal notice to the contracting officer before a government invoice can be assigned to a factoring company. Without this step, the factor has no legal security interest in the payment.
- →WCP draw: if your SBA Working Capital Pilot line is already active, drawing it costs roughly prime + 3% on a 60-day draw — approximately $1,067 on $80,000. Half the cost of factoring.
- →MCA stacked on SBA acquisition debt is a documented path to default. It is listed here as a last resort, not an option.
Three options, ranked by cost
You have a submitted government invoice, a payment due in 60 days, and payroll due this Friday. Three instruments exist for this situation. Here they are in order of cost, from least to most expensive.
Option 1: Draw your SBA WCP line. If you already have a WCP line in place, this is the right answer. Cost: prime + 3% annualized, drawn only for the days the line is outstanding. Speed: same-day draw once the line is active. Catch: you had to set this up before the emergency. If you do not have a WCP line, you cannot draw it in 48 hours.
Option 2: Government invoice factoring. You sell the invoice to a factoring company at a 1.5%–3% discount per 30 days. Advance of 80%–90% arrives in 24–48 hours after one setup step (the Notice of Assignment to the contracting officer). Cost: more than WCP, but accessible without a prior credit relationship.
Option 3: Merchant cash advance. Listed here for completeness. For a business carrying SBA acquisition debt, an MCA is genuinely dangerous — daily payments stacked on monthly SBA debt service have been described in r/govcon threads as the fastest path to default after losing the contract itself.
Cost comparison for an $80,000 invoice on Net-60 terms
| Instrument | Cost on $80K (Net-60) | Advance Received | Speed | SBA Covenant Risk |
|---|---|---|---|---|
| SBA WCP draw (prime + 3%, 60 days) | ~$1,067 | Up to $80,000 | Same day (if line active) | Low — transparent, documented |
| Gov contract factoring (2% per 30 days) | $3,200 | $64,000–$72,000 | 24–48 hours | None if structured properly |
| Gov contract factoring (3% per 30 days) | $4,800 | $64,000–$72,000 | 24–48 hours | None if structured properly |
| Merchant cash advance (15% factor rate) | $12,000 | $68,000–$80,000 | 24–72 hours | High — stacked on SBA debt is dangerous |
Note: WCP cost assumes prime at 8.5% (May 2026). Factoring cost is fee-only; the 10%–20% reserve is returned when the agency pays. MCA cost is total fee, not returned.
The Assignment of Claims Act in plain English
This is the step most factoring guides skip. Under 41 U.S.C. § 6305, a contractor cannot assign payment under a government contract to a third party without formally notifying the contracting officer. This notification is called a Notice of Assignment.
Who must receive it: (1) the contracting officer by name and office address, (2) the agency payment office (for DoD contracts, this is typically DFAS), and (3) the surety if a payment or performance bond is in place.
What it must contain: the contract number, the amount being assigned, and the factor's payment instructions (their lockbox address where the agency should redirect payment).
What happens without it: the factoring company has no legal security interest in the payment. The agency will pay the account on file — your business bank account. If you have already received the factoring advance, you now owe the factor their money back, plus default interest. The factor cannot pursue the agency for payment they were never legally entitled to receive.
Most government contract factoring companies handle the Notice of Assignment as part of their onboarding process. If a factoring company does not mention it when you apply, that is a red flag about their experience with government AR.
How to notify your contracting officer
The process is straightforward when done correctly. Your factoring company should provide a Notice of Assignment template. Review it before signing.
The notice goes out via certified mail or documented email to the contracting officer, the payment office, and the surety. Most factoring companies send it on your behalf once the factoring agreement is signed — verify this in the agreement.
The agency's acknowledgment is not legally required for the assignment to be valid, but it is worth confirming receipt. Some agencies take 2–3 business days to update their payment records. Your factor's lockbox will not receive funds until the agency's system reflects the new payment destination.
One scenario where this gets complicated: if your contract contains explicit anti-assignment language (some sole-source contracts do), the assignment may be restricted. Read your contract's payment clause before applying for factoring. If you are unsure, a government contracts attorney can review it in under an hour.
What most articles get wrong: presenting MCA as a bridge for SBA borrowers
Merchant cash advance providers market aggressively to small business owners in distress. When you search "government contract cash flow" or "payroll gap financing," MCA advertisers are prominent.
For a business without SBA debt, an MCA is expensive but not necessarily catastrophic. For a business carrying SBA acquisition debt, the math is different. SBA 7(a) debt service on a $500K loan runs roughly $5,800 per month. An MCA on an $80,000 advance at a 15% factor rate generates roughly $12,000 in fees, drawn through daily or weekly remittances that can run $500–$1,000 per business day for the duration of the advance.
The overlap between SBA debt service and MCA remittances can consume 100% of available cash before the government invoice pays. r/loansforsmallbusiness threads document this pattern in detail — borrowers who took MCAs to bridge government contract payment gaps, only to find the combined debt service unsustainable before the invoice cleared.
For the full comparison of invoice factoring vs. WCP vs. MCA, and the interaction with SBA covenants, see invoice factoring for government contracts.
Read Next
Financing
Invoice Factoring for Government Contracts: The Cash Flow Fix Nobody Explains to New Owners
Net-30/60/90 government payment terms collide directly with SBA acquisition debt service. Invoice factoring converts government invoices into cash in 24–48 hours — but most guides ignore the Assignment of Claims Act, which voids the factoring company's security if you miss one step.
Gov Contracts
Your SBA Payment Is Due in 90 Days. Government Contracts Take 6 Months. Here's the Math.
Your SBA 7(a) payment does not pause when you win a government contract. Here is the month-by-month math on a $500K acquisition carrying a Net-60 first contract.
Financing
How to Use Your SBA Working Capital Line Before Your First Government Contract Pays Out
The SBA Working Capital Pilot (WCP) is the most underused financing tool for business owners who have both SBA acquisition debt and a pending government contract. This guide covers how the WCP works, how it interacts with your existing 7(a), and how to approach your lender before you're in distress.
This article is for informational purposes only and does not constitute financial, legal, or investment advice - consult a licensed professional before making acquisition or financing decisions.
Carrying SBA acquisition debt with a government invoice on Net-60 terms? Check your working capital options before payroll is at risk.
Free guide — delivered to your inbox.
Frequently Asked Questions
Answer 10 questions. See which lenders match your profile and what loan types fit your acquisition.
Check your SBA lending readiness →By FundBizPro Research · Published 2026-05-21 · United States
Written by
FundBizPro Research Team
Backgrounds in commercial banking and SBA lending
The FundBizPro Research Team writes from primary sources - government program documentation, SBA SOP language, lender-published rate sheets, and FDD filings - rather than aggregating other websites. Content is educational only and is not a substitute for advice from a licensed professional.
About our editorial standards →