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Contractor glossary

Retainage

Updated

Definition

Retainage is a set percentage of each progress payment that the customer or general contractor holds back until the work is complete, as security that the job gets finished and corrected. It's money you've earned but get paid later, usually at closeout.

Also called: Retention

How retainage works

Each time you bill a progress payment, the payer subtracts the retainage and pays you the rest. The held amounts add up over the job and come due at the end, once the release conditions in your contract are met.

You'll mostly run into it as a subcontractor on general contractor (GC) work: new construction, commercial jobs and larger remodels billed through pay applications. A GC whose own payments carry retainage often passes the same holdback down to its subcontractors. Service calls and everyday residential repair work are usually paid at completion without it.

Example: A $40,000 subcontract with 10% retainage (a made-up figure; use the one in your contract). You bill $10,000 of completed work each month for four months. Each month the GC holds $1,000 and pays $9,000. When your work is done, $4,000 is still owed to you. If your profit on the job is about $4,000, every dollar you made on it is sitting in retainage.

What it costs you

Retainage is earned money you can't use yet. You've already paid your crew and your supplier for that work, so you're carrying part of the job's cost until it's released. On jobs with retainage:

  • Plan the cash. Expect the held amount to arrive well after your last day on site, and make sure the jobs in between can carry payroll. See cash flow.
  • Price it in. Waiting months for part of your money has a real cost, so account for it when you bid.
  • Track it as its own receivable. Retainage never looks overdue in your accounts receivable, so it's easy to forget.

Getting it released

  • Read the release clause before you sign. Know what triggers payment (your own work being done, the whole project being done, or the owner releasing retainage to the GC) and how long the payer has after that.
  • Clear your punch list fast. Open items are an easy reason to keep holding your money.
  • Have the closeout paperwork ready: inspection sign-off, warranties, manuals and any as-built drawings your contract calls for, plus the lien waiver the payer will ask for.
  • Send a separate retainage invoice the day the conditions are met, and put a follow-up date on your calendar.

Common mistakes and misconceptions

  • "Retainage is a discount." It's a delayed payment of money you've earned, owed in full.
  • Signing it away. Read every lien waiver before you sign it, and make sure it doesn't give up retainage you're still owed.
  • Assuming the percentage is standard. It comes from your contract. Some states limit how much can be held or set deadlines for releasing it, and public projects often have rules of their own, so check your state's law or ask a construction attorney before you sign.
  • Waiting past a lien deadline. Mechanic's lien and notice deadlines are set by state law and can pass while you're still waiting on retainage. Know yours before the job ends.

How it connects

Retainage comes out of progress billing and is usually released after the punch list and closeout. How to invoice electrical jobs shows how it appears on a pay application, and how to collect overdue invoices covers what to do when it isn't paid on time.

Go deeper

Electrical guideHow to Invoice Electrical JobsHow electricians invoice service calls, panel and EV charger jobs, and GC work: progress billing, permits, change orders, retainage and lien waivers.GuideHow to Get Paid Faster as a ContractorHow contractors get paid sooner: payment terms set at booking, invoices sent the day the job ends, pay links, deposits, progress billing and reminders.GuideHow to Collect Overdue InvoicesA contractor's plan for past-due invoices: a reminder schedule, a call script, payment plans, a final notice letter, late fees, liens and small claims.
Progress billingProgress billing is invoicing a job in stages as the work is completed, instead of sending one invoice at the end. Each invoice bills the part of the contract earned so far, either for reaching agreed milestones or by percent complete against a schedule of values.Punch listA punch list is the written list of small items still to finish or fix at the end of a job, such as touch-ups, missing trim or adjustments, that the contractor completes before the customer signs off on the work and pays the final balance.Lien waiverA lien waiver is a signed document in which a contractor, subcontractor or supplier gives up some or all of its lien rights on a property in exchange for payment. A waiver is either conditional or unconditional, and covers either a progress payment or the final payment.Mechanic's lienA mechanic's lien is a legal claim against real property, filed by a contractor, subcontractor or supplier who wasn't paid for work or materials that improved it. Who qualifies, the notices required and the deadlines to record and enforce it are set by each state's law.Accounts receivableAccounts receivable (AR) is the total your customers owe you for work you've done and invoiced but haven't been paid for yet. It's money you've earned but can't spend, which is why a busy month can still leave you short on cash.Cash flowCash flow is the money moving into and out of your business, and when it moves. Profit tells you whether your work makes money; cash flow tells you whether the money is in the bank when payroll, suppliers and taxes come due.

See every term in the glossary