In plain English
Track it as a receivable (to you) or a payable (to a subcontractor). Revenue is earned though cash is delayed.
Release terms are in the contract.
Why it matters
On construction and similar contract work, retainage can hold back a meaningful slice of each payment until the job is finished. If you do not track it separately, your receivables look like unpaid invoices that are overdue, and you may chase customers for money that is not yet due or forget to bill it when the project closes.
For a subcontractor, unreleased retainage can strain cash for months, so seeing the total by job helps with planning.
Worked example
A $20,000 bill with 10% retainage pays $18,000 now; $2,000 is retainage receivable.
How to handle it
- Create a separate retainage receivable account, and a retainage payable account if you hold back from your own subs.
- On each progress bill, split the amount between regular receivables and retainage according to the contract.
- Keep a schedule by job listing retainage billed, released and still outstanding.
- When the job is complete and the contract terms are met, invoice the retained amount and move it to regular receivables.
Common mistakes
- Recording only the cash received, which understates revenue on the job and the amount owed to you.
- Leaving retainage in ordinary receivables, which makes the aging report show it as past due.
- Forgetting to request release after completion, so the money sits uncollected long after the work ended.
Not the same as: Accounts receivable
Accounts receivable is money currently due on regular terms. Retainage receivable is also owed to you but is not due until a contract condition, usually completion, is met. See Accounts receivable.
Go deeper
- Bookkeeping for Contractors and Builders: How contractors should track job costs, retainage, progress billing, subcontractors and WIP so every job shows a real profit or loss.
Related terms
- Retained earnings: The profit a business has kept over time, after distributions, rather than paid out.
- Revenue: The money a business earns from selling goods or services before expenses.
- Purchase discount: A price reduction a vendor gives for paying early, such as 2/10 net 30.
Common questions
What is a retainage?
A percentage of a construction or project payment held back until work is complete.
Can you give an example of retainage?
A $20,000 bill with 10% retainage pays $18,000 now; $2,000 is retainage receivable.
Does retainage count as revenue when it is held back?
Generally the work has been performed, so under accrual accounting the revenue is earned even though payment is delayed. On a cash basis it may be different, so confirm the treatment with your accountant.
How do I track retainage I withhold from my subcontractors?
Record the full sub invoice as a cost, pay the net amount, and leave the held-back portion in a retainage payable account. Release it when your contract with the sub allows.
General information, not tax, legal or accounting advice. Confirm rules with the IRS, the NJ Division of Taxation or a licensed professional.