Accounting for invoice factoring

Picture this...

You enter into a contract for supplies or services on behalf of the Commonwealth and under the contract you agree to pay the contractor on a milestone or recurring basis for work performed. The arrangement is going well, until the contractor (or an unknown third party) asks if you could pay amounts due under the contract to someone else instead. Wait a minute—is this allowed?

In this scenario, it's possible the contractor is seeking to enter into an arrangement known as invoice factoring. We will explain this arrangement, why government contracts are popular targets and what to consider when a contractor wants to assign its right to payment.

What is invoice factoring?