Tracking Retention

Retention is a common practice in the construction world.  Whether you’re a subcontractor invoicing a general contractor, or a remodeler billing a customer, you may find that 10% of the invoice will be withheld until the project (or your portion of the project) is complete and everything looks good.

A common question is how to account for the amount being withheld and keep track of it over a period of time.  With multiple invoices and multiple projects, it can add up!  Some use Excel, others pencil and paper.  But there’s an easier way.

One-Time Setup

  1. Create an Other Asset account for Retainage Receivable in your Chart of Accounts
  2. Create an Item for Retainage
    1. Type = Other Charge
    2. Code charge to a Retainage Receivable (Other Current Asset)
    3. Amount = -10%

Working with Retention

Now let’s say you are invoicing $25,000 but 10% ($2500) needs to be withheld.

  1. Create your invoice
  2. Add your Retainage Receivable Item
    1. Note: If you have multiple line items, you will need to subtotal before you add the Retainage item

      When you look at your balance sheet, then retainage due to you will be there – really nice when you have multiple projects going!
  3. Create a Retention Receivable Report
    1. Customers & Receivables>Customer Balance Summary or Detail
    2. Click on Customize Report –
      1. On the Filters tab, choose Retainage Receivable instead of Accounts Receivable
  4. At end of job, to invoice for the retainage due…
    1. Run the Retention Receivable Report created above to get the amount owed to you
    2. Then Invoice for the retainage due.
      1. You can use the Retainage Item as before, but change from -10% to the amount due
      2. Or create a new retainage Item, code to Retainage Receivable and leave the amount blank

It’s a similar process if you track Retainage Payable, but that’s for another day.

If you have questions or need help with this, let us know.

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4 Responses to Tracking Retention

  1. Joseph says:

    I don’t know if this is possible or wrong. I am using quickbooks. One of our customer in particular have us paying her a retention fund on each installment she makes to us. Her loan institution pays us the full amount and then we write the cheque with the retention amount to her.

    Recently, apart from the retention, we gave her an additional amount as a loan.
    eg.
    I wrote cheque Cr Bank 10,000.00
    Dr Retainage Receivable 5,000.00 (retention)
    Dr Accounts Receivable (Customer name) 5,000.00 (loan)
    It reflects on her account that she owes us the additional 5,000.00

    We just received another one of her installment through her loan institution. Therefore I was wondering, instead of paying off the retention amount to her on this installment, how do I offset it against the additional loan we gave her last time.

  2. I’m not following your question. I’ve never heard of paying a customer a retention fee on an installment she makes to you. You might better off checking w/your accountant

  3. I ve set up the retainage items and the retainage receivable account my question is when I invoice for the retention the retention amount does not show up in my sales income total? It only takes the retention off the retainage receivable account but I need that retainage amount to show up in the P & L report. What am I doing wrong?

  4. Retainage isn’t a sales item. The products/service items on your invoice are your sales and retainage is not a product or service so it doesn’t show on a P & L. Retainage is a balance sheet transaction. On an accrual basis, an invoice for 15000 -1500 for retention will show income of 15000. On a cash basis, it will show 1500 b/c the open balance on the invoice was reduced (‘paid”) by the amount of retention. And once your customer pays you the open amount on that invoice, that invoice will be paid in full and the 1500 is a part of your retainage receiveable which you will collect. if the retention showed as income once you got paid, it would overstate your income. Sounds like you’re looking for more of a cash flow report – and the P & L is not a cash flow report.

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