Contractor Finance Glossary
What is Retainage?
Definition reviewed .
Also called: retention
Retainage is the part of a progress payment withheld until release conditions in the contract are met. The rate and release timing depend on the contract and applicable jurisdiction.
Retainage is withheld from contract payments until the release conditions are met. Revenue recognition and the right to collect still need their own contract analysis. When the retainage rate exceeds the job's gross margin, accumulated retainage can exceed that job's profit, which means the margin is locked up in the customer's account until release.
Retainage releases on contractual milestones rather than ordinary invoice terms. Illustratively, 10% withheld on a job with 8% gross margin exceeds the profit earned on the billed work until release; this is arithmetic, not an industry rate or a causal ranking.
Track retainage receivable and payable separately, submit the release request and required closeout documents when eligible, and record the expected release date as its own collection task. Match subcontract retainage only where contracts and applicable rules permit. Public-work and other jurisdictional rules can differ.
How it is calculated
Retainage withheld = eligible progress-billing base times the applicable contract rate. For example, a 5% or 10% rate is an illustration, not a universal requirement. Outstanding retainage = amounts withheld minus amounts released, subject to the contract and applicable rules.
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