Learn what retainage receivable is, how to record it, where it sits on the balance sheet, and how construction firms track and collect retainage.
Shyam Agarwal
Retainage receivable is the portion of a contractor's progress billings that the customer withholds until the project, or a defined phase of it, is complete. It is common in construction contracts, where the owner or general contractor holds back a percentage of each payment as security that the work will be finished to specification. Retainage receivable is reported as an asset.
On each progress billing, the customer pays the billed amount minus the retainage percentage stated in the contract. The withheld amounts accumulate over the project and are paid to the contractor once the release conditions are met. Retainage is also called retention, and retainage receivable is also called retention receivable.
Retainage is often set between 5% and 10% of each billing. The actual rate depends on the contract, and some states limit the percentage that can be held or require it to be reduced once a project reaches a set level of completion.
Release conditions are defined in the contract and commonly include substantial completion of the work, completion of the punch list, receipt of lien waivers from subcontractors and suppliers, owner or architect sign-off, and submission of closeout documents such as warranties and as-built drawings.
Accounts receivable is billed and due under normal payment terms, such as net 30. Retainage receivable is billed but not due until contract release conditions are met, which can be months or more than a year later. Because of this timing difference, retainage should be tracked separately from regular receivables by contract.
Retainage is also different from unbilled receivables. Retainage has been billed and withheld by the customer. Unbilled receivables have been earned but not yet invoiced. See our guide to unbilled receivables for that case.
To record retainage receivable, split each progress billing into the amount currently due and the amount withheld. Debit accounts receivable for the amount due, debit retainage receivable for the withheld amount, and credit contract revenue for the total billing. When retainage is released, move it to accounts receivable and record the payment when received.
Example. A contractor bills $200,000 for completed work under a contract with 10% retainage.
Recording the progress billing:
Recording the customer's payment of the progress billing:
Recording the retainage release invoice at project completion:
Recording payment of the retainage:
This example assumes the revenue recognized for the period equals the amount billed. When revenue recognition and billing differ, contract asset or contract liability accounts record the difference.
Over a full project, retainage accumulates with each pay application and is released as one amount at completion. If the contract reduces the retainage rate partway through, the lower rate applies to later billings.
Example. A subcontractor has a $500,000 contract with 10% retainage, reduced to 5% after the project reaches 50% complete. The reduction applies to future billings only.
| Pay Application | Work Billed | Retainage Rate | Retainage Held | Amount Due | Cumulative Retainage |
|---|---|---|---|---|---|
| 1 | $100,000 | 10% | $10,000 | $90,000 | $10,000 |
| 2 | $150,000 | 10% | $15,000 | $135,000 | $25,000 |
| 3 | $150,000 | 5% | $7,500 | $142,500 | $32,500 |
| 4 | $100,000 | 5% | $5,000 | $95,000 | $37,500 |
| Release | — | — | — | $37,500 | $0 |
After pay application 2, cumulative billing reaches $250,000, which is 50% of the contract, so the rate drops to 5% from pay application 3. At completion, $37,500 is held and invoiced for release once lien waivers and closeout documents are submitted. Some contracts apply a reduction retroactively and release part of the retainage already held, so confirm the contract terms before calculating the balance due.
Approved change orders usually carry the same retainage rate as the base contract unless the contract or the change order states otherwise. For example, a $40,000 approved change order on a contract with 10% retainage results in $4,000 of retainage held and $36,000 due on billing.
Track change order retainage separately from base contract retainage. Unapproved or disputed change orders should not be billed until they are approved, so no retainage applies to them yet.
Retainage receivable is usually reported as a current asset. Contractors often classify contract-related balances using the operating cycle, which can exceed one year, so retainage expected to be collected after twelve months may still be presented as current. Many contractors show retainage as a separate line or disclose it in the notes, including the amount expected to be collected after one year.
Retainage receivable is the amount a contractor is owed but has not yet been paid because the customer is withholding it. Retainage payable is the amount a general contractor or owner has withheld from a subcontractor and still owes. Retainage receivable is an asset; retainage payable is a liability.
A general contractor often carries both at the same time: retainage receivable from the project owner and retainage payable to its subcontractors. Many subcontracts include pay-when-paid or pay-if-paid clauses that link retainage payable to retainage received from the owner. The enforceability of these clauses varies by state, so confirm with legal counsel.
Retainage needs separate tracking because it behaves differently from regular receivables. Held for months, retainage appears severely past due in a standard aging report even though it is not yet due, which distorts collection priorities. Keeping retainage in its own report allows the AR aging to reflect real collection risk.
Retainage also ties up significant working capital. At 10%, retainage on a large project can equal the contractor's entire margin on the job. Release depends on paperwork, and missing lien waivers or closeout documents are among the most common reasons retainage stays unpaid after the work is finished. Small balances on completed projects are also easy to overlook once project teams move on.
A retainage tracking report should list, for each contract, the contract value including approved change orders, the retainage rate and any reduction terms, total retainage held to date, percentage complete, release conditions still outstanding, expected release date, and retainage invoiced but not yet paid. Review the report monthly and sort it by expected release date to prioritize closeout work.
Contractors collect retainage faster by recording release conditions at contract start, tracking retainage by contract, collecting lien waivers with each pay application, requesting reductions when eligible, invoicing the release as soon as conditions are met, resolving punch list disputes quickly, and escalating unpaid release invoices on a set schedule.
Log the retainage rate, reduction terms, and documents required for release.
Report the balance held and conditions outstanding for each project.
Gather waivers with each pay application rather than only at closeout.
Many contracts allow retainage to decrease after a completion threshold.
Issue the retainage invoice the day the conditions are met.
Log each disputed item with an owner and date so it does not hold the full retainage balance. Structured dispute management keeps each issue tied to the amount it affects.
Treat a released but unpaid retainage invoice like any other past due invoice.
For contractors and subcontractors managing many open projects, our construction accounts receivable page covers how retainage, progress billing, and collections fit together.
40%
DSO reduction70%
less manual work95%
cash match accuracyFind out exactly how much time and money your AR team can save with Quick Receivable. No commitment, no setup required.
AI-powered Accounts Receivable Automation on Salesforce, built to accelerate collections, automate workflows, and improve cash flow.