Retainage: the money you earned and cannot touch

Retainage is a percentage of every progress payment that the owner or general contractor holds back until the job is finished and accepted. Typically five or ten percent, sometimes more.

You earned it. You cannot have it yet. And for a subcontractor it is one of the harshest features of commercial work, because it is withheld from money you have already spent to earn.

Why it hurts more than it looks

Consider a $200,000 job with ten percent retainage. You are financing $20,000 of that project yourself, out of your own working capital, for however long completion and release take.

Now run three of those at once and you have $60,000 outstanding. That is a real amount of cash to have permanently parked while you make payroll every week.

Two things make it worse:

You do not control the release date. It typically depends on overall project completion, not on when you finished. Your work can be signed off in March and the retainage still sits there in November because another trade is running late.

Your own costs were paid up front. Material, labour and subs on that job were settled long ago at full value. The withheld portion comes straight out of your margin's timing.

Where it goes wrong in the books

Most contractor books handle retainage badly, in one of two ways.

It is never recorded at all. The invoice is entered at the net amount received, so the withheld portion simply does not exist in the accounting system. Your revenue is understated, and there is no record of money owed to you.

It sits inside general receivables. Slightly better, but it is now mixed with normal invoices and ages alongside them. Every ageing report shows a large overdue balance that nobody chases because "that is just retainage" — and eventually nobody can say which part is which.

Both end the same way: retainage that quietly stops being tracked, on jobs completed long enough ago that asking feels awkward.

How it should be handled

Its own account. Retainage receivable, separate from trade receivables. It behaves differently and ages differently, so it should never be inside the same bucket.

Per job. Which job, how much, and what the release condition is.

With a release date, or the condition for one. Substantial completion, final acceptance, a fixed number of days after — whatever the contract says. Recorded when the job starts, not looked up in a panic later.

Reported monthly. A single line: total retainage held, by job, oldest first. That report takes moments to produce and is the entire reason it stops being forgotten.

Chasing it

Retainage does not release itself. Somebody has to ask.

Know the trigger. Read the contract at the start rather than the end. If release is tied to overall project completion, you know from day one that your timeline is not yours.

Submit your closeout promptly. Lien waivers, warranties, as-builts, whatever the contract requires. Retainage frequently sits unreleased because paperwork on your side is outstanding, and nobody rings to tell you.

Ask on a schedule. Once your release condition is met, a friendly enquiry at two weeks, then four, then a conversation. The same discipline as ordinary receivables chasing — it just starts later.

Know your state's rules. Many states cap retainage percentages, set maximum hold periods, or require release within a defined window after completion, particularly on public work. Worth knowing what protection you have before you need it.

Pricing for it

If a contract carries retainage, you are extending credit for the duration. That has a cost, and it belongs in the bid rather than being absorbed silently.

It also belongs in your cash flow forecast — as money arriving on the release date, not on completion. Those are frequently months apart, and forecasting the wrong one is how a profitable quarter turns into a payroll problem.

Related

• Getting paid faster on commercial work
• A cash flow forecast you will actually keep up
• Change orders and getting paid

General information. Retainage limits, hold periods and release requirements vary by state and by contract — check yours.