Retainage in Construction: Clear Terms, Faster Cash Flow, One System

What Is Retainage in Construction?

Retainage is the portion of each progress payment—typically a retainage percentage of 5% to 10%—that is withheld until the project reaches substantial completion or a key milestone. Retainage is calculated as a percentage of the contract value and deducted from each progress payment. It’s earned revenue that remains unpaid until the project is fully signed off.

Retainage funds and payment retainage are common practices in construction contracts. The percentage withheld can vary depending on the project type, jurisdiction, and negotiated terms.

Why it exists:

• Protect owners – Funds remain available to fix defects or incomplete work.

• Motivate completion – Ensures punch lists and final paperwork are addressed.

• Guarantee compliance – Keeps all parties accountable to contract terms and regulations.

• Agreement required – Both the owner and the contractor must agree on the retainage terms and payment plan before work begins.

The payment process for retainage involves structured payment applications and progress payments. Understanding the timing of retainage payment is crucial for managing cash flow throughout the project.

By working from this standardized structure and maintaining complete documentation, contractors, project owners, and architects can quickly verify progress and approve payments—reducing confusion, avoiding disputes, and keeping projects on schedule.

How Retainage in Construction Works in Practice

Different structures balance risk and cash flow—choose what fits the job.

• Fixed retainage
  A single percentage (usually 5%–10%) is withheld on every draw until substantial completion, then released after inspections and documentation are approved.
  Example: On a $1,000,000 contract with 10% retainage, $10,000 is withheld from each $100,000 draw—$100,000 total—released only after approvals.

• Variable / sliding retainage
  Start higher (e.g., 10%) and step down (e.g., 5%) at a milestone such as topping out or ~90% complete to ease cash flow late in the job.

• Partial releases by scope
  Retainage for a finished trade/scope may be released once accepted and required documents (e.g., lien waivers) are in—even if the overall project continues.

• Retention bond (in lieu of cash)
  A surety bond can replace cash retainage (when allowed), preserving working capital while still protecting the owner.

Common Retainage Challenges

Retainage should be straightforward, but on active jobs, it rarely is. It’s not the concept that trips people up—it’s the avalanche of paperwork, mismatched contract terms, and chaos from too many spreadsheets.

• Delayed releases: One missing waiver, a late inspection, or an unfinished punch-list item stalls your cash—sometimes for weeks.

• Mismatched subcontracts & missed COs: When the owner’s holding back 5% but your subcontracts are set at 10%, or change orders and T&M work don’t flow through, you get gaps in cash flow and a recipe for disputes.

• Manual tracking & version sprawl: Ever lived through the “final_final.xlsx” vs. “reallyfinal.xlsx” drama? Spreadsheets multiply, mistakes hide, double-withholding creeps in, and billing slows to a crawl.

• Sliding-rate & partial-release errors: When retainage is supposed to step down from 10% to 5% at project milestones—or pay out by trade/scope—but those triggers are missed or not tied to cost codes, you’re left sorting out over- and under-withholding later.

• Lien-waiver gaps: The wrong waiver type or a missing lower-tier waiver can block payments at the finish line.

• Escrow/interest rules overlooked: Sometimes, local rules around escrow or interest slip through the cracks, leading to penalties or unnecessary battles with project owners.

• AR/AP out of sync: Paying retainage to subs before receiving your owner payment? Painful—and all too common when receivables and payables live in different software.

• No portfolio view: Without a dashboard rolling up withheld, released, and pending amounts across your pipeline, deadlines get missed and exposure shows up as a surprise.

Standardize retainage rules, push the terms downstream, tie every release to actual work and the right documents, and manage everything—invoices, balances, compliance—from one connected system. That’s how retainage goes from headache to handled.

How Acumatica Solves Retainage

Acumatica Construction Edition has retainage management built into the ERP system, transforming a traditionally manual, end-of-project scramble into a daily, automated process. Acumatica automates the tracking of retainage funds and retainage receivables, ensuring that retainage is calculated accurately and managed efficiently throughout the project lifecycle.

Here’s how it simplifies every step:

Complete Retainage Setup from the Start

• Define retainage rules by project, customer, or vendor—flat rates or variable percentages. You can specify the retainage percentage and how retainage is calculated for each project, ensuring compliance with state regulations and contract terms. Acumatica allows retainage to vary by project, customer, or vendor, supporting flexible contract arrangements.

• Set milestones and partial release triggers (e.g., drop from 10% to 5% at 90% completion), and clarify how the retainage percentage changes as the project progresses.

• Establish escrow requirements or retention bond details right in the contract record, and ensure that the payment plan and retainage terms are agreed upon by both the owner and the contractor at the start of the project.

Every invoice, report, and forecast follows these rules automatically.

Automated Tracking and Billing

• Retainage receivable and payable balances, including retainage receivables, update in real time on every progress invoice, so tracking retainage is straightforward in Acumatica.

• When conditions are met, Acumatica generates the release invoice automatically, automating the release of retainage payment and removing manual calculations and eliminating missed deadlines.

Integrated Accounts Payable and Accounts Receivable

• Withheld money from customers and owed to subcontractors is perfectly synchronized, ensuring that all retainage withheld is accurately tracked throughout the process.

• Withholding retainage can lead to disputes or delays if not managed properly, but Acumatica's automation helps prevent such issues by allowing you to immediately release payment to subs when an owner releases funds, with full system reconciliation and no manual work.

Centralized Documentation & Compliance

• Upload and link lien waivers, insurance certificates, warranties, and inspection reports.

• The system blocks retainage release until every required document is attached and final approval is granted, confirming the project's completion.

• A complete audit trail supports owners, lenders, and bonding agencies. If disputes arise over documentation or release, Acumatica's audit trail supports effective dispute resolution.

Real-Time Dashboards & Alerts

• The dashboard provides real-time tracking, including total retainage funds and retainage receivables across all projects.

• Receive alerts for missing documentation, approaching deadlines, or expiring bonds.

• Project managers and accountants share the same live view, avoiding miscommunication.

Forecasting & Cash-Flow Insight

• Include retained amounts, such as retainage receivables, in job cost reports and cash projections for accurate, forward-looking financial planning. Tracking retainage in your accounting system ensures you account for these balances properly.

• Instantly see how pending retainage funds affect working capital and bonding capacity, as these amounts are factored into your cash projections.

Connected Field-to-Office Access

• Because Acumatica is cloud-based, project managers can submit retainage invoices and upload required documents from the job site—no VPN needed.

• Controllers and CFOs can review and approve from anywhere, keeping projects on schedule.

Key Benefits of Managing Retainage in Acumatica for Construction Companies

Keep retainage as a safeguard, not a slowdown. Acumatica Construction Edition transforms retainage management into a transparent, repeatable workflow—milestones trigger releases, documents secure payments, and dashboards show exactly what’s withheld, what’s pending, and what’s next.

Here’s what contractors gain when retainage management moves inside one connected platform.

1. Stronger, More Predictable Cash Flow

Late or missing retainage payments can squeeze working capital and force borrowing. Acumatica keeps every dollar visible and every release on schedule.

• Real-time cash projections that include retainage receivables and tracking retainage, ensuring timely retainage payment

• Immediate alerts when milestones are met so invoices go out the same day

• Automated release billing that speeds approvals and reduces borrowing costs

The result is faster access to earned revenue and fewer surprises at month-end.

2. Time Savings and Lower Admin Costs

Retainage accounting often means spreadsheets, email chains, and manual reconciliations. Acumatica automates the process from contract setup to final payment, streamlining the construction payment process.

• Retainage calculated automatically and posted in AP and AR, reducing manual errors and ensuring compliance with construction payment requirements

• Built-in approvals and electronic documentation

• Less rework and fewer disputes with owners and subcontractors

Finance teams can redirect hours from chasing paperwork to strategic work like forecasting and analysis.

3. Tighter Compliance and Audit-Ready Records

Missing lien waivers or insurance certificates can stop a release cold and even trigger penalties. Acumatica keeps compliance airtight.

• Every required document is stored with its contract and invoice

• Releases can be automatically blocked until all paperwork is complete

• A full audit trail supports bonding reviews, owner requests, regulatory inspections, and dispute resolution by providing detailed records of all transactions

• Final approval and confirmation of the project's completion are required before retainage is released

You gain confidence that every retainage dollar is backed by complete, accurate records.

4. Better Relationships with Owners and Subcontractors

Transparent, reliable retainage management fosters trust and repeat business:

• Everyone knows what’s on hold and when payment will be released.

• On-time releases strengthen subcontractor loyalty and speed up closeouts.

• Clear communication and dependable payments build lasting partnerships.

Clear communication and dependable payments with the project owner and property owner build long-term partnerships that win future work.

5. Built to Scale with Your Business

Whether you run a handful of jobs or hundreds, Acumatica’s cloud ERP grows with you.

• Unlimited users mean your field team, accounting staff, and executives can all access the system without extra license costs

• Mobile access keeps everyone connected, from jobsite to office, with no VPN

• Consistent processes reduce risk as project volume increases

• Acumatica supports managing retainage for the entire project, including large building projects and public construction projects

You can take on larger, more complex projects without worrying about retainage complexity or system limits.

6. Competitive Edge on Every Bid

Owners and bonding agents look closely at financial strength and process control. Demonstrating tight, transparent retainage management helps you stand out.

• Show bonding companies accurate, current financials

• Bid confidently, knowing retained funds, withheld money, cash retention, and progress payments are tracked and forecasted

• Reduce disputes and manage financial risks such as contractor default, contractor and subcontractor defaults, subcontractor defaults, and incomplete or defective work

Acumatica also supports compliance with requirements for retention bonds, surety company guarantees, and mechanic's lien rights in both private construction projects and public projects.

A stronger financial position backed by automated retainage management gives your company an edge in winning and delivering profitable projects.

Fix Construction Retainage with a Complete ERP Solution

Keep retainage a safeguard—not a slowdown. With Acumatica Construction Edition, milestone-based releases, built-in compliance checks, and AR/AP sync give your construction business a clear view of what’s held, what’s pending, and what frees up next—reducing cash-flow issues and supporting successful completion on every project.

Curious about cost? Our pricing guide gives straightforward budget ranges and what’s included. Looking beyond retainage? The finance guide walks through the biggest construction finance headaches—retainage, WIP, cash flow—and how a connected system solves them.

If you have questions—or want to see how Acumatica could work for your business—just contact us.