The Federal Assignment of Claims Act, also known as FACA, provides guidance, restrictions, and protections for government contractors who sell their invoices. Before FACA was passed, the law prohibited contractors from assigning their accounts receivable to factoring companies. However, this drastically reduced the amount of work contractors were able to provide because it limited their cash flow.
FACA allows contractors to assign invoices to factoring companies if they meet the following requirements:
If a contractor sells their invoices to a factoring company, FACA states that the government is obligated to make payments directly to the factoring company's bank account. The government cannot recover payments were made in error. FACA prohibits the government contractor, the seller, from redirecting the government payments. Also, FACA allows the factoring company to pursue collection of past-due invoices.
When a federal contractor assigns their invoices to a factoring company, they must send out three copies of the notice of assignment. This notice informs the clients that their accounts have been sold. One copy is sent to the contracting officer or head of the government agency, one is sent to the surety or guarantor on any bond included in the contract, and one is sent to the disbursing officer who is designated to make payments.
The Uniform Commercial Code (UCC) provides some additional guidelines on factoring for federal contractors. Factoring companies must file a UCC-1 statement for all government contract payments. This statement is a declaration of their right to seize assets from debtors who default on their payments.