# What Is Retainage in Construction?

Retainage is a portion of each progress payment, set by the contract as a percentage, that the owner or general contractor holds back until the job or your scope is finished. It protects the payer if work is left incomplete or defective. For the contractor, retainage is money earned and billed but not yet collectible.

## Key takeaways

- Retainage = progress billing amount × retainage percentage. The rate comes from your contract, and some contracts reduce it partway through the job.
- On federal construction contracts, FAR 32.103 says retainage withheld shall not exceed 10% of the approved estimated amount.
- State laws on retainage caps and release deadlines vary, and often differ between public and private projects. Check your state's rules.
- Track retainage in its own receivable (and payable, if you hold it from subs) so it doesn't get lost at closeout.
- Getting retainage released usually takes a separate invoice plus closeout documents: punch list sign-off, lien waivers, warranties.

## How does retainage work?

Each month you bill for the work completed. The owner or GC pays that amount minus the retainage percentage and holds the rest. The held amounts build up over the job. When the work is substantially complete, or your scope is finished and accepted, you submit a retainage invoice and the paperwork the contract requires, and the held money is released.

**Retainage**

```
Retainage withheld = Work completed this period × Retainage %
```

Where:
- Work completed this period = the value billed for the period, often including stored materials
- Retainage % = the rate in your contract, sometimes different for work and stored materials

> **Worked example: an electrical subcontract with 10% retainage**
>
> Illustrative numbers. An electrical contractor has a $400,000 subcontract with 10% retainage.
>
> **Month 1:** bills $80,000 of completed work. Retainage = $8,000. Payment due = **$72,000**.
>
> **Month 2:** bills $120,000. Retainage = $12,000. Payment due = **$108,000**. Retainage held to date: $20,000.
>
> **Month 3:** bills $140,000. Retainage = $14,000. Payment due = **$126,000**. Retainage held to date: $34,000.
>
> **Month 4:** bills the last $60,000. Retainage = $6,000. Payment due = **$54,000**. Retainage held to date: **$40,000**, the full 10% of the contract.
>
> That $40,000 is likely the electrician's entire profit margin on the job, and it won't arrive until the project closes out, which can be months after the electrician leaves the site.

Some contracts reduce retainage once the job reaches a milestone, such as dropping to 5% (or to zero on new billings) at 50% complete. Read the payment section of every contract before you sign it; the retainage terms are one of the biggest cash flow decisions on the job.

## What are the rules on retainage?

Retainage is set by contract, and in many places limited by law. On federal construction contracts, FAR 32.103 says the contracting officer may withhold retainage when satisfactory progress hasn't been achieved, that it shall not exceed 10% of the approved estimated amount, and that retained amounts shall be paid promptly once all contract requirements are complete. The federal Prompt Payment clause for construction contracts (FAR 52.232-27) lets primes and subs retain a percentage of progress payments to their own subs as their subcontracts allow.

Many states have their own prompt payment or retainage statutes that may cap retainage percentages, set deadlines to release it, or add interest on late payment, and the rules can differ between public and private jobs. We don't list state limits here because they change and come with many conditions. Check your state's statute or ask a construction attorney before you sign a contract with retainage.

> General information, not legal or tax advice. Retainage limits, release deadlines and the tax timing of retainage income depend on your contract, your state and your accounting method. Confirm with an attorney and your CPA.

## How do you account for retainage?

Keep retainage out of regular [accounts receivable](https://www.brix.so/learn/accounts-receivable) so collections reports stay meaningful. Most contractors use a separate retainage receivable account (an other current asset, or long-term if release is more than a year away). General contractors who hold retainage from their subs also need a retainage payable account.

**Retainage entries for the month 1 example (accrual books)**

| Event | Debit | Credit |
| --- | --- | --- |
| Bill $80,000 with 10% retainage | Accounts receivable $72,000; Retainage receivable $8,000 | Contract income $80,000 |
| Receive the $72,000 payment | Cash $72,000 | Accounts receivable $72,000 |
| Bill retainage at closeout ($40,000 total) | Accounts receivable $40,000 | Retainage receivable $40,000 |
| Collect retainage | Cash $40,000 | Accounts receivable $40,000 |

_One common approach. On cash-basis books, income is recorded when retainage is actually received. Your bookkeeper or CPA may set this up differently in QuickBooks._

In QuickBooks Online, many contractors handle this with a negative "Retainage" line item on each progress invoice that posts to the retainage receivable account, then invoice the accumulated balance at closeout. Whichever way you set it up, retainage belongs in billed to date on your [WIP report](https://www.brix.so/learn/wip-report) and in the retainage column of an [AIA G703](https://www.brix.so/learn/aia-billing).

## How do you get retainage released faster?

1. **Negotiate it up front.** Ask for a lower rate, a reduction at 50% complete, or release when your scope is done rather than when the whole project closes.
2. **Finish the punch list fast.** Retainage usually waits on a clean [punch list](https://www.brix.so/learn/punch-list). Don't let the last 2% of work hold 10% of the money.
3. **Have closeout documents ready.** As-builts, O&M manuals, warranties, final [lien waivers](https://www.brix.so/learn/lien-waiver) and inspection sign-offs, assembled before you need them.
4. **Send a separate retainage invoice.** Don't assume the GC will release it on their own. Bill it, with a due date.
5. **Follow up on a schedule.** Put retainage on your collections list like any other receivable. See [how to collect unpaid invoices](https://www.brix.so/learn/how-to-collect-unpaid-invoices).
6. **Know your lien deadlines.** If retainage isn't paid, your [mechanics lien](https://www.brix.so/learn/mechanics-lien) rights may be your strongest tool, and they expire.

## Retainage by trade

**Where retainage shows up**

| Trade | Retainage exposure | Tip |
| --- | --- | --- |
| General contractor | Withheld by owners; also withheld from subs | Match what you hold from subs to what the owner holds from you |
| Electrical and mechanical subs | High: monthly progress billing on commercial work | Early-finishing trades (site work, foundations, rough-in) wait longest; negotiate release at scope completion |
| Commercial roofing | Moderate to high | Have warranty paperwork ready at completion; it's often a closeout requirement |
| Residential service and remodeling | Low; homeowners rarely hold formal retainage | A final payment held for punch list items works like informal retainage |
| Landscaping and site work on commercial jobs | Moderate; often finish early in the project | Ask for release when your work is accepted, not at final completion |

_Patterns, not measured statistics._

## Common retainage mistakes

- **Pricing jobs as if retainage arrives on time.** Plan your cash as if retainage arrives months after you finish.
- **Forgetting to bill it.** Retainage that's never invoiced quietly becomes a write-off.
- **Mixing it into regular A/R.** It inflates your aging report and [DSO](https://www.brix.so/learn/days-sales-outstanding).
- **Signing without reading.** Retainage terms, pay-when-paid clauses and release conditions belong in your review of every contract.
- **Letting lien rights lapse** while waiting politely for release.

BRIX turns completed work into invoices and politely chases unpaid ones, including the retainage invoice at closeout, until the money is in your account, and syncs every invoice and payment with QuickBooks.

- [Invoicing and payments](https://www.brix.so/features/invoicing-payments): Turns finished jobs into invoices and politely chases unpaid ones until the money is in your account.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.

## Frequently asked questions

### What is a typical retainage percentage?

There's no single standard: the rate is whatever your contract says, and some contracts step it down partway through the job. Federal construction contracts cap it at 10% under FAR 32.103, and many states set their own limits that can differ for public and private jobs, so check the rules where you work.

### Is retainage income when billed or when received?

On accrual books, the full progress billing (including retainage) is usually recorded as earned, with retainage in a separate receivable. On cash-basis books it's income when received. The tax timing can differ from your books, so confirm the treatment with your CPA.

### When is retainage due?

When the contract says, usually at substantial completion or final acceptance of the project, or of your scope, after closeout documents are submitted. Many states set deadlines for release after completion, so check your state's prompt payment or retainage law.

### Can a general contractor hold retainage from subs?

Yes, if the subcontract allows it. Many GCs withhold the same percentage from subs that the owner withholds from them. State laws may limit how much and how long, and the federal Prompt Payment clause addresses retainage on federal jobs.

### Should I put retainage on my invoices?

Yes. Show the gross amount earned, the retainage withheld and the net amount due on every progress invoice or pay application. It keeps the running retainage balance clear for both sides and makes the final retainage invoice easy to support.

### What if retainage is never paid?

Send a formal demand with your closeout documents, then look at your options: mechanics lien or bond claim rights (which have strict deadlines), prompt payment act interest where it applies, small claims or court. Talk to a construction attorney before deadlines pass.

## Related

- [What Is Progress Billing?](https://www.brix.so/learn/progress-billing)
- [AIA Billing Explained: How to Fill Out a G702 and G703](https://www.brix.so/learn/aia-billing)
- [What Is a WIP Report (Work-in-Progress Schedule)?](https://www.brix.so/learn/wip-report)
- [What Is a Mechanic's Lien?](https://www.brix.so/learn/mechanics-lien)
- [What Is a Lien Waiver?](https://www.brix.so/learn/lien-waiver)
- [What Is Accounts Receivable?](https://www.brix.so/learn/accounts-receivable)
- [What Is Days Sales Outstanding (DSO)?](https://www.brix.so/learn/days-sales-outstanding)
- [Contractor invoicing software that sends the invoice and chases the money](https://www.brix.so/features/invoicing-payments)
- [Bookkeeping for contractors that keeps your books tax-ready all year](https://www.brix.so/features/bookkeeping-taxes)
- [QuickBooks for contractors: the right version, real job costing and a sync that keeps the books matched to the jobs](https://www.brix.so/integrations/quickbooks)

## Sources

- [Acquisition.gov — FAR 32.103, Progress payments under construction contracts](https://www.acquisition.gov/far/32.103) (checked 2026-10-12)
- [Acquisition.gov — FAR 52.232-27, Prompt Payment for Construction Contracts](https://www.acquisition.gov/far/52.232-27) (checked 2026-10-12)

---
Written by BRIX Editorial Team. Last updated 2026-10-12. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/learn/retainage