Glossary · legal

Assignment of Claims

Also called Assignment of Claims Act, government contract assignment, assignment of proceeds.

The statutory procedure for assigning money due under a US government contract to a bank or other financing institution, so the government pays the financier directly.

Drafted with AI assistance and checked by a person. Its factual claims were verified against the sources listed at the end, by Find Me Funders research desk.

What it means

Claims against the United States are generally not assignable — the rule exists so the government is not drawn into disputes between contractors and third parties. The Assignment of Claims Act creates a narrow exception for assignments to a financing institution, which is what makes it possible to borrow against or factor a federal receivable at all. The core provisions sit at 31 U.S.C. § 3727 and 41 U.S.C. § 6305, with the procedure in FAR subpart 32.8.

What the procedure requires

  • The assignee must be a bank, trust company or other financing institution, including a federal lending agency
  • Unless the contract expressly permits otherwise, the assignment must cover the balance of all amounts due from the government under the contract, not selected invoices
  • Assignment is to one party, though that party may participate the interest to others
  • Written notice and a true copy of the instrument of assignment must be filed with the contracting officer, the disbursing officer and any surety
  • The government acknowledges the filing, and only then does the payment office redirect payment

The no-setoff commitment

A contract may include a clause under which the government agrees that payments made to the assignee "are not subject to reduction or setoff". That clause is not a universal entitlement: the statute makes it available in contracts of the Department of Defense, the General Services Administration, the Department of Energy and other agencies the President designates on a determination of need published in the Federal Register, and it has to actually be in your contract. Without it, the government can set off unrelated amounts you owe — a tax debt, an overpayment on another contract — against the assigned payment, and the assignee's advance is exposed.

State and municipal work

States, counties and school districts have their own anti-assignment rules and their own procedures, and they are not uniform. Some prohibit assignment outright. Check the contract and the purchasing authority's rules before assuming a public receivable can be financed.

Where this one catches people

A UCC-1 does not redirect a federal payment. A factor or lender that advances against a government receivable on the strength of its security interest alone has a lien on money the Treasury will keep sending to you, in your account, where it can be spent. Perfection under Article 9 and compliance with the Assignment of Claims Act are separate exercises, and the second one is the one that moves the cash.

Practically, the filing takes time and it is administrative. Contracting officers acknowledge assignments on their own schedule, payment offices update records on theirs, and a facility that assumes 30-day turn on federal invoices frequently meets 60 or 90. Build the timeline into the facility before you rely on it. And check for the no-setoff clause specifically: without it, a dispute on an entirely unrelated contract can reduce the payment your financier is counting on.

Where you will meet this term

Working Capital Invoice Financing Asset-Based Lending

Read next

Assignment of contractTransferring your right to be paid under a contract to a funder, so the money is legally theirs to collect fr… ConcentrationHow much of a business's revenue or receivables depends on a single customer, and the cap funders place on ho… Eligible receivableAn invoice that counts toward the borrowing base because it passes the lender's tests on age, customer, conce… Invoice factoringSelling receivables to a third party at a discount for immediate cash, with the buyer taking over collection … Invoice verificationThe factor's process of confirming with your customer that the work was delivered, the amount is right and no… Notice of assignment (NOA)The written notice telling a customer that its invoices have been assigned to a factor and that payment must … PerfectionThe steps that make a security interest effective against other creditors - for most business collateral, fil… SetoffA creditor's right to apply money it already holds for you — usually deposits — against what you owe it, with… UCC-1 financing statement (UCC-1)A short public notice filed with a state office announcing that a creditor claims a security interest in desc…

Sources and checks

Every figure on this page traces to a document someone read, on a date. Where a check is past its review date it says so rather than passing as current.

  1. A federal contract or interest in it may not be transferred, which is the rule the Assignment of Claims Act carves an exception out of definition
    "The party to whom the Federal Government gives a contract or order may not transfer the contract or order, or any interest in the contract or order, to another party."
    Legal Information Institute, Cornell Law School — 41 U.S. Code § 6305 - Prohibition on transfer of contract and claims Verified against source Checked 10 Sep 2026 by Find Me Funders research desk
  2. The assignee must be a bank, trust company, Federal lending agency or other financing institution definition
    "Notwithstanding subsection (a) and in accordance with the requirements of this subsection, amounts due from the Federal Government under a contract may be assigned to a bank, trust company, Federal lending agency, or other financing institution."
    Legal Information Institute, Cornell Law School — 41 U.S. Code § 6305 - Prohibition on transfer of contract and claims Verified against source Checked 10 Sep 2026 by Find Me Funders research desk
  3. The requirement to cover all amounts due is subject to a contractual carve-out the entry previously omitted definition
    "Unless otherwise expressly permitted by the contract, an assignment under this subsection must cover the balance of all amounts due from the Federal Government."
    Legal Information Institute, Cornell Law School — 41 U.S. Code § 6305 - Prohibition on transfer of contract and claims corrected Checked 10 Sep 2026 by Find Me Funders research desk
  4. Written notice and a true copy of the instrument of assignment must be filed with the contracting officer, the surety and the disbursing officer definition
    The assignee must file written notice and a true copy of the assignment instrument with the contracting officer or agency head, the surety on any bond, and the disbursing officer designated in the contract.
    Legal Information Institute, Cornell Law School — 41 U.S. Code § 6305 - Prohibition on transfer of contract and claims Verified against source Checked 10 Sep 2026 by Find Me Funders research desk
  5. The no-setoff commitment is not universal: it is available in contracts of designated agencies and must be in the contract definition
    "payments made to an assignee under the contract are not subject to reduction or setoff" — applying where included in contracts of the Department of Defense, GSA, Department of Energy, or other agencies designated by the President on a determination published in the Federal Register.
    Legal Information Institute, Cornell Law School — 41 U.S. Code § 6305 - Prohibition on transfer of contract and claims corrected Checked 10 Sep 2026 by Find Me Funders research desk
  6. Claims against the United States are generally not assignable, with a narrow exception for financing institutions definition
    "An assignment may be made only after a claim is allowed, the amount of the claim is decided, and a warrant for payment of the claim has been issued"; subsection (c) exempts assignments to financing institutions of money due under contracts of at least $1,000.
    Legal Information Institute, Cornell Law School — 31 U.S. Code § 3727 - Assignments of claims Verified against source Checked 10 Sep 2026 by Find Me Funders research desk

Assignment of Claims — common questions

What does assignment of claims mean?

The statutory procedure for assigning money due under a US government contract to a bank or other financing institution, so the government pays the financier directly.

Where does assignment of claims catch people out?

A UCC-1 does not redirect a federal payment. A factor or lender that advances against a government receivable on the strength of its security interest alone has a lien on money the Treasury will keep sending to you, in your account, where it can be spent. Perfection under Article 9 and compliance with the Assignment of Claims Act are separate exercises, and the second one is the one that moves the cash.

Is assignment of claims the same as an interest rate?

Assignment of Claims is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does assignment of claims apply to?

Working Capital, Invoice Financing, Asset-Based Lending.

Is there a worked example of assignment of claims?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside assignment of claims?

Assignment of contract, Concentration, Eligible receivable, Invoice factoring, Invoice verification.

Has this definition been checked?

Yes. Its claims were verified against the sources listed at the end of this page, and the reviewer is named.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.