Updated 12/15/2025
Accountability is huge in construction. So much so, that most owners don’t pay contractors in full until a construction project is “substantially complete” according to its design intent. This concept of holding back a portion of money until a job is signed off on is called retainage. It’s just another one of the many ways construction accounting is unique.
But just because retainage doesn’t come into play until the end of a construction job doesn’t mean you don’t have to think about it before then. Accurately managing and tracking retainage receivables and payables from the get-go is a must, no matter where you are in a project’s hierarchy.
In this guide, we’ll walk you through retainage payables and receivables so you can streamline your accounting process and make sure you get the funds you’re owed.
Key Takeaways
- Because retainage is usually payable upon project completion, it should be recorded as a unique account on your general ledger.
- Retainage fees due to your business are recorded as an asset, while fees owed are recorded as a liability.
- While laws vary by state, the timely release of retainage is critical to maintaining a healthy cash flow.
A Quick Overview of Retainage
In construction, retainage is money withheld from a project's progress payments to ensure contractors, subcontractors, and suppliers complete the job according to the specifications set in the contract. Generally speaking, retainage rates range from 5-10% depending on the payment terms negotiated in the construction contract.
On a typical job, the owner will hold retainage from payments owed to the general contractor, who might also withhold retainage from subcontractors and suppliers under them. It's easy to think about retainage as a form of insurance for an owner; by withholding a portion of payment, a project is more likely to be completed successfully.
🔎 Dive Deeper: Check out our Ultimate Guide to Retainage in Construction
Retainage Receivables vs. Retainage Payables
In construction accounting, you have your accounts receivable and accounts payable, which record cash flowing in and out of your business. While they might sound similar, these shouldn't be confused with retainage receivable or retainage payable.
👉 Retainage receivable - The amount of retainage owed to a contractor, sub, or supplier from the project owner or GC.
👉 Retainage payable - Funds held by the general contractor or project owner that are owed to contractors, vendors, and subs downstream.
In either case, any holdback is normally due and payable only upon project completion. Because of this, retainage should be recorded in its own account on your general ledger.
Comparing Retainage Tracking Methods Across Accounting Platforms
When it comes to tracking retainage in accounting software, contractors have three main approaches, each with distinct trade-offs:
Generic Accounting Software (QuickBooks Online/Desktop)
- Requires manual setup of retainage asset accounts and negative line items on invoices
- Manual calculations needed for each progress payment
- Limited project-level visibility and reporting
- Best for: Small contractors with occasional retainage
Enterprise ERP Systems (Sage 300 CRE, Foundation)
- Built-in retainage workflows with automatic calculations
- Advanced project accounting and job costing integration
- Complex setup and high cost of ownership
- Best for: Large contractors with dedicated accounting teams
Construction-Specific Platforms (CrewCost)
- Purpose-built retainage automation at the contract level
- Integrated progress billing and change order management
- Real-time project profitability with retainage impact
- Best for: Growing contractors seeking efficiency without complexity
Recording and Tracking Retainage Receivables
Tracking and recording retainage is a vital part of managing your cash flow. To do this, you'll first want to add the appropriate retainage accounts to your Chart of Accounts. Your Chart of Accounts is a fundamental part of good construction accounting and serves as the foundation for creating your balance sheet and P&L. By incorporating retainage receivables here, you'll be able to accurately record and track holdback on each project you take on.
Setting Up Retainage Tracking: The Manual Approach
If you're using generic accounting software like QuickBooks, retainage tracking requires several manual steps for each project:
- Create an "Other Current Asset" account named "Retainage Receivable"
- Set up a retainage service item linked to this asset account
- Add negative retainage line items to each progress invoice (requiring manual percentage calculations)
- Create separate retainage invoices when projects complete
- Run custom reports to track outstanding retainage across all projects
This manual process works but becomes time-intensive and error-prone as you scale multiple projects with different retainage terms.
The Automated Alternative for Retainage Tracking
Purpose-built construction accounting platforms automate this entire workflow:
- Contract-level retainage setup with automatic percentage calculations
- Integrated progress billing that handles retainage on each draw
- Real-time retainage reporting across all active projects
- Automatic retainage invoice generation upon project completion
Let's move on to the balance sheet. If you're due retainage fees, this should be recorded as an asset.
If you owe retainage though, this should be recorded as a liability. Based on this, retainage receivable accounts will reflect as a debit balance, and retainage payables will show as a credit.
As with all good accounting processes, all parties on a project need to maintain up-to-date balances as it relates to retainage receivables.
How to Account for Retainage Payables
Accounting for retainage payables typically involves tracking funds held back from contractors, subs, and suppliers until a project is finished. Just like the steps for recording and tracking retainage receivables, an account for retainage payables should be created in your company's Chart of Accounts to monitor these transactions and balances. When in doubt, always document. You can't accurately manage retainage payables without good record-keeping. With a solid process in hand, you'll not only be able to track the numbers correctly but will keep your company in compliance with Generally Accepted Accounting Principles (GAAP).
When retainage payables are billed, they'll move to accounts payable or subcontract payable. Similarly, retainage receivable moves to accounts receivable when billed. Following GAAP guidelines, accounts receivable are debited for retainage amounts withheld, and accounts payable are credited an equal amount. Heads up: Retainage balances don't have a due or payable date. Due dates are applied only when retainage moves to AR or AP.
Timely Payments and Releases
As with a lot of things in construction, where you work will influence the rules and standards around retainage. Each state has its own rules on how long retainage can be held back. To make matters more complicated, every state has a different definition of what constitutes the satisfactory completion of a job.
Some states call for the release of retainage within a set number of days from the project's date of completion, while others require retainage to be released upon final approval of the work. Either way, if you don't receive your retainage payment on time, you're likely to face serious cash flow issues. To help avoid this, you should create a basic cash flow project that includes dates for both receiving and paying retainage.
Like we mentioned before, retainage in the construction industry generally ranges from 5-10%, which mirrors the profit margin many construction contractors expect from each job. Because contractors often need to make outlays for upfront costs on a job, waiting for retainage to be released can make a tough financial situation even more difficult. On the other side, subcontractors and suppliers are often made to wait until project completion or final approval to see their retainage payment, even if their portion of the project was finished early on. All this to say, it's not hard to see just how important managing retainage receivables and payables is - not just for your construction company, but for everyone under you as well.
Because of the pay-when-paid clause, most general contractors will notice that their accounts receivable retainage and accounts payable retainage line up with their payments. This can help keep your cash flow in a good spot once retainage payments start flowing down from upstream.
💥 Dive deeper into all aspects of construction accounting with our Ultimate Guide to Construction Accounting for Contractors.
Progress Billing and AIA Integration Challenges
For contractors managing AIA-style progress billing, retainage tracking becomes even more complex. Each Application for Payment (AIA G702/G703) requires:
- Accurate calculation of "Retainage from Completed Work" for each line item
- Proper handling of stored materials vs. completed work retainage
- Coordination between retainage held and amounts due
- Phase-specific retainage rates that may vary by contract terms
Generic accounting software struggles with this multi-layered complexity, often requiring contractors to maintain separate spreadsheets for AIA calculations while manually entering summarized data into their accounting system. This dual-entry process creates reconciliation headaches and increases the risk of errors that can impact cash flow projections.
Construction-specific platforms integrate AIA progress billing directly with retainage accounting, ensuring that Schedule of Values, progress calculations, and retainage tracking all stay synchronized automatically.
Integrating Retainage Into Your Accounting Processes
If paper and Excel sheets still dominate the accounting process for your construction business, you're missing out on time that could be spent on higher-impact tasks. But even contractors who are ready to move to a new platform find themselves caught between two unsatisfying options:
Option 1: Stick with generic small-business accounting tools (QuickBooks) that require extensive manual workarounds for construction-specific processes like retainage tracking.
Option 2: Invest in complex ERP systems designed for enterprise contractors, with lengthy implementations and costs that don't align with growing company budgets.
CrewCost eliminates this false choice. As construction-specific accounting software that has been purpose-built for growing general contractors, CrewCost streamlines your company financials so you can focus on delivering great work and winning more projects. Along with automating core accounting functions, this platform seamlessly integrates retainage with other critical processes like progress invoicing, job costing, and financial reporting.
Key retainage features include:
- Contract-level retainage setup with automatic calculations
- Integrated progress billing and change order management
- Real-time project profitability reporting with retainage impact
Sound good? Schedule a demo and see CrewCost in action.