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Billing & AR

What is retainage?

Definition

A percentage of each progress payment, commonly 5% to 10%, that the owner or GC holds back until the job or a phase is substantially complete.

How it works

Retainage protects the owner if work is defective or incomplete. It's withheld from each pay application and released at substantial or final completion, often after punch list and closeout documents.

Accounting for retainage

Track retainage receivable separately from regular receivables, and retainage payable separately on subcontractor invoices. Mixing them hides how much cash is locked up and distorts your receivables aging.

Related terms

Pay application (AIA G702/G703)

The progress billing request a contractor submits to the owner, typically on the AIA G702 application form with a G703 continuation sheet listing progress by line item.

Lien waiver

A document in which a contractor, sub, or supplier gives up some or all of its lien rights in exchange for payment.

Schedule of values

A breakdown of the contract sum into line items, each with a value, used as the basis for progress billing.

Guides that cover this

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