Retainage

What is retainage?

Retainage (also called retention or holdback) is money a client withholds from each payment, typically 5% to 10%, as security that the job will be finished properly. It is common on construction projects that use progress billing. The held amount is released once the project is complete and any deficiencies are fixed.

In Canada, construction holdbacks are often required by provincial law, usually at 10%.

How retainage works

A typical retainage process looks like this:

• Contract terms: The contract sets the retainage percentage and release conditions
• Stage invoices: Each progress invoice shows the gross amount, the retainage withheld, and the net amount payable
• Tracking: Withheld amounts build up as accounts receivable you are still owed
• Release: After completion, you send a final invoice for the retained amount, often along with a lien waiver

Why retainage matters for cash flow

On a large job, retainage can add up to a significant sum that you will not see for months. Build it into your cash flow planning, track it separately from regular outstanding invoices, and follow up promptly for release once the work is signed off.