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

What Is Retainage in Construction?

Retainage is the portion of each progress payment, typically 5% to 10%, that is withheld until a project reaches substantial completion or a defined milestone. It is calculated as a percentage of the contract value and deducted from each payment. It represents earned revenue that remains unpaid and sits in retainage accounts until final signoff or release.

This practice is common in construction contracts, though the percentage withheld can vary based on 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.

Common Retainage Challenges

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 and missed change orders: When the owner is holding back 5 percent but subcontracts are set at 10 percent, or when change orders and time and materials work do not flow through correctly, gaps appear in cash flow and disputes follow.

Manual tracking and version sprawl: Ever lived through the 'final_thisone.xlsx' versus 'reallyfinal.thisisit.xlsx' drama? Spreadsheets multiply, mistakes hide, double withholding creeps in, and billing slows to a crawl.

Sliding rate and partial release errors: When retainage is meant to step down from 10 percent to 5 percent at project milestones, or release by trade or scope, missed triggers and poor linkage to cost codes lead to 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 and interest rules overlooked: Local requirements around escrow or interest are sometimes missed, leading to penalties or unnecessary disputes with project owners.

AR and AP out of sync: Paying retainage to subcontractors before receiving owner payment is painful and common when receivables and payables live in different systems.

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

Standardize retainage rules, push terms downstream, tie every release to verified work and required documentation, and manage everything in one connected system, including invoices, balances, and compliance. That’s how retainage goes from headache to handled.

How Acumatica Solves Retainage

Acumatica Construction Edition includes retainage management directly within the ERP system, turning what is often a manual, end-of-project scramble into a consistent, day-to-day process. Retained amounts and related receivables are tracked automatically, ensuring calculations remain accurate and visible 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 using flat rates or variable percentages. You can specify percentages and calculation rules 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 update in real time on every progress invoice, providing clear, up-to-date visibility throughout the project.

• 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 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 turns retainage management into a transparent, repeatable workflow where milestones trigger releases, documents secure payments, and dashboards show exactly what is withheld, what is pending, and what comes next.

Here is what contractors gain when retainage management lives 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 all withheld amounts, improving visibility and payment timing

• Immediate alerts when milestones are met so release 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 through final payment, streamlining the construction payment workflow.

• Retainage calculated automatically and posted in accounts payable and receivable, reducing manual errors and supporting payment compliance

• Built-in approvals and centralized electronic documentation

• Less rework and fewer disputes with owners and subcontractors

Finance teams can redirect time from chasing paperwork to higher-value work like forecasting and analysis.

3. Tighter Compliance and Audit-Ready Records

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

• Every required document is stored with its related contract and invoice

• Retainage cannot be released until all paperwork is complete and final approval is confirmed

• A complete audit trail supports bonding reviews, owner requests, regulatory inspections, and dispute resolution

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

4. Better Relationships with Owners and Subcontractors

Transparent and reliable retainage management builds trust and repeat business.

• Clear visibility into what is on hold and when payment will be released

• On-time releases that strengthen subcontractor loyalty and speed closeouts

• Dependable communication and payments with owners and subcontractors that support long-term partnerships

5. Built to Scale with Your Business

Whether you manage a handful of jobs or hundreds, Acumatica’s cloud ERP scales with your operation.

• Unlimited users allow field teams, accounting staff, and executives to access the system without additional license costs

• Mobile access keeps everyone connected from the jobsite to the office without a VPN

• Consistent processes reduce risk as project volume and complexity increase

• Retainage management works across complex portfolios, including public and private projects

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

6. Competitive Edge on Every Bid

Owners and bonding agents closely evaluate financial strength and process control. Strong retainage management helps you stand out.

• Provide bonding companies with accurate, current financial visibility

• Bid with confidence knowing retained amounts and progress billings are tracked and forecasted

• Reduce disputes and manage financial risk related to defaults, incomplete work, and closeout issues

• Support compliance with retention bonds, surety requirements, and lien rights across public and private projects

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

Fix Construction Retainage with a Complete ERP Solution

Acumatica Construction Edition connects milestone-based releases, compliance tracking, and accounts receivable and payable in one system, giving finance teams clear visibility into retained amounts, pending releases, and upcoming cash flow.

Ready to move beyond “final_thisone.xlsx” and manual workarounds?

If you are exploring next steps, the pricing guide outlines typical budget ranges, and the construction finance guide takes a broader look at retainage, work in progress, and cash flow in a connected system.

Or feel free to contact us if you have questions.