Construction Retainage Explained: How It Works, Accounting, and Release

Retainage is the portion of a construction payment, typically 5 to 10 percent, that the project owner withholds from each progress payment until the work is substantially or fully complete. It assures the owner that the contractor will finish the job and close out the punch list before the held funds are released.

In the US the term is retainage; in the UK and much of the Commonwealth, and on some US owner-side ledgers, it's called retention. They mean the same thing. The mechanic is simple, but the money isn't trivial. The average construction invoice already takes about 90 days to pay, according to Rabbet's 2024 Construction Payments Report, and retained funds usually wait far longer than that. Retainage is one piece of the broader construction payment management picture, and it's the piece that ties up the most working capital and trips up the most AP teams.

Key Takeaways

• Retainage is a 5-to-10-percent holdback on each construction progress payment, released once the work is substantially or fully complete.

• "Retainage" (US) and "retention" (UK and Commonwealth) describe the same holdback, and the terms are interchangeable in nearly every context.

• The same retained dollar is a retainage receivable, a current asset, on the billing contractor's books, and a retainage payable, a current liability, on the withholding party's books.

• State law increasingly caps retainage, with roughly half of capping states at 5 percent and the rest at 10 percent, and several tightening to 5 percent for private work.

• Generic AP automation tools weren't built to track retainage per line item across pay applications, which is why teams that run it in spreadsheets reconcile by hand.

What is retainage in construction?

Retainage in construction is money the paying party holds back from each progress payment as security that the work will be finished correctly. On every pay application, retainage is calculated as a percentage of the amount billed, the held portion accumulates in a running balance, and that balance is released at defined milestones near the end of the job. It runs in both directions on a project: the owner withholds from the general contractor, and the general contractor withholds the same way from its subcontractors.

The point of the holdback is leverage. As long as the owner is sitting on a meaningful slice of the contract value, the contractor has a strong financial reason to return for punch-list work, resolve defects, and deliver the lien waivers that close the job out cleanly. That leverage is also why retainage is one of the most contested items in construction finance.

Is retainage the same as retention?

Retainage and retention are the same mechanism under two different names. "Retainage" is standard US usage, while "retention" is the UK and Commonwealth term, and some US owner-side accounting departments use it too. If you're reading a contract that says retention and your AP system says retainage, they're describing the identical holdback. The only practical caution is on international projects, where the surrounding contract language and statutory rules differ even though the concept doesn't.

Why do owners withhold retainage?

Owners withhold retainage for three reasons that all come back to finishing the work. It's financial assurance against a contractor walking off or going under mid-project, it's leverage to get punch-list items actually completed, and it's a cushion against post-completion defects and lien exposure. The held funds give the owner something concrete to apply if the contractor doesn't deliver, without having to chase a refund after the money is already gone.

What percentage of retainage is typical?

Typical retainage runs 5 to 10 percent of each progress payment, with 10 percent historically common and 5 percent increasingly the cap that states impose. Larger contracts often step the rate down, dropping from 10 percent to 5 percent once the project passes a completion threshold such as 50 percent complete. The exact figure is set by the contract, but the contract can't exceed whatever cap the governing state statute imposes.

How does retainage differ by state?

Retainage caps and release rules differ sharply by state, which is the detail multi-state contractors most often get wrong. Public projects almost always carry a statutory cap; private projects vary, with some states regulating the rate and most leaving it to the contract. The table below compares several of the states with the most search demand and the clearest statutes.

Roughly half of the states that cap retainage set the limit at 5 percent and the rest at 10 percent, with the recent trend running toward 5 percent for private work, according to ConstructionCoverage's 2026 retainage survey. New York's SB 5655, signed in December 2025, shows the direction of travel. It capped private retainage at 5 percent for larger private contracts and voided any contract term that tried to exceed it.

How do public and private retainage rules differ?

Public and private retainage rules differ mainly in how tightly they're regulated. Public works almost always sit under a statutory cap and prompt-payment rules that dictate the maximum rate and the release timeline. Private projects are a patchwork: a growing number of states cap private retainage, but where there's no statute, the rate and release terms are whatever the parties negotiated into the contract. For a contractor, that means the contract is the first place to look and the state statute is the ceiling.

How does retainage appear on AIA G702 and G703 pay applications?

Retainage appears on the AIA G702 pay application as a dedicated line, with the underlying detail on the companion G703 continuation sheet. The G702 is the summary "Application and Certificate for Payment," and the G703 is the line-by-line schedule of values behind it. Together they're the standard pay-application format on most commercial projects, and they're where retainage is calculated, tracked, and eventually released.

Where does retainage appear on the AIA G702 form?

On AIA Document G702, retainage is calculated and totaled on Line 9, which sums the retainage withheld on completed work and on stored materials from the G703. That total reduces the current payment due, so Line 9 is effectively the running tally of money the owner is holding back across the life of the project. It's a small line on the form that carries a large share of a contractor's cash.

How does retainage carry forward across pay applications?

Retainage carries forward by accumulating on the G703 schedule of values from one pay application to the next. Each pay app adds new retainage on the work completed that period, and the cumulative balance grows across the schedule until a release event draws it back down. When retainage is released, an amendment to the pay application moves dollars out of the retained column and into the amount due, which is the mechanical step that finally puts the held cash in motion.

How is retainage recorded in accounting?

Retainage is recorded differently depending on which side of the contract you're on, and the same retained dollar shows up on two balance sheets at once. The party billing for work records it as an asset it expects to collect; the party withholding payment records it as a liability it expects to pay. Getting both entries right is what keeps a construction balance sheet honest about cash that's earned but not yet in hand.

What is retainage receivable?

Retainage receivable is the retained amount a contractor or subcontractor has earned but the owner hasn't paid yet. It's booked as a current asset when collection is expected within twelve months, or a long-term asset when release runs beyond a year. The entry debits retainage receivable and credits construction revenue, because under ASC 606 the revenue is generally recognized when the work is performed, not when the cash arrives. On contracts where collection is still conditional, that retained amount may sit as a contract asset rather than a straight receivable.

What is retainage payable?

Retainage payable is the amount a general contractor or owner is withholding from someone below them and still owes. It's booked as a current liability until the funds are released, with the entry debiting the subcontractor cost and crediting retainage payable. When the release event finally happens, the contractor debits retainage payable and credits cash, clearing the liability and sending the held money down to the sub.

Does the same retained dollar appear on both balance sheets?

Yes, the same retained dollar appears as a receivable on the billing party's books and a payable on the withholding party's books at the same time. A subcontractor carries its withheld funds as retainage receivable, while the general contractor holding those funds carries the matching amount as retainage payable. The two entries mirror each other across the contract, which is why retainage reconciliation breaks down fast when the two sides track it in separate, unconnected systems.

When does retainage get released?

Retainage gets released in stages tied to project milestones, not in a single payment at the end. Most contracts define two or three release events, and almost all of them hinge on a clean lien-waiver chain. The common triggers:

• A step-down at substantial completion, when many contracts cut the held rate from 10 percent to 5 percent.

• Final completion and punch-list closeout, which releases the remaining balance.

• Receipt of a final, unconditional lien waiver from the contractor and from its subs and suppliers.

How do lien waivers trigger retainage release?

Lien waivers trigger retainage release by removing the lien risk that the held funds were protecting against. A conditional waiver takes effect only once payment clears, while an unconditional one waives the rights outright, and a final unconditional waiver from the contractor and its lower tiers is what most owners require before they release the last of the retainage. When a sub has unpaid material suppliers, owners often release the funds by joint check, paying the sub and supplier together so the retained money doesn't leave behind a fresh lien.

How long does it take to receive retainage?

Retainage usually takes 30 to 365 days to receive after final completion, depending on the jurisdiction, the contract terms, and how clean the lien-waiver chain is. That wide range is the working-capital problem in a sentence. The money is earned but parked, and on a portfolio of active jobs the held balance can run into real seven-figure territory. It's the same cash-flow pressure that pushes contractors toward tools that improve cash flow through faster AP, since every day of delay is a day that capital can't be redeployed.

Adoption of virtual cards that reduce fraud and free up cash reflects the same pressure: 23% of construction firms already use virtual cards and another 33% plan to within 12 to 24 months, according to Deluxe's 2024 report on construction AP automation.

Why don't generic AP automation tools handle retainage well?

Generic AP automation tools don't handle retainage well because they were built for corporate accounts payable, where an invoice is a single-line object with one approval and one payment. Construction pay applications don't work that way, and the gap shows up immediately. A construction-ready workflow has to handle:

• Per-line-item retainage withholding tied to the schedule of values

• Cumulative retainage tracking across multiple pay applications on one contract

• Project- and cost-coded postings to the construction ERP's job-cost module

• A retainage-release workflow separate from normal invoice approval

• Lien-waiver dependencies on the release event

Most general-purpose tools do none of this natively, so construction teams keep a parallel retainage spreadsheet and reconcile it to the ERP by hand. That spreadsheet is part of the hidden cost of a manual payment process, and it's expensive even before you count the errors. Manual invoice processing runs roughly $18 to $26 per invoice versus $2.36 to $2.78 when it's automated, according to NanoNets' 2025 AP-processing research, and a pay application with retainage adds steps that a single-line invoice never had.

The result is the overloaded construction-AP role you hear about constantly, doing work that better-fit tooling would absorb. A broad move to accounts payable automation is meant to remove that friction, but only if the platform actually understands construction, which is the first thing to check when evaluating construction payment software.

How Corpay tracks retainage in the construction AP workflow

Corpay handles retainage by integrating with the construction ERPs that model it natively, so the holdback is tracked inside the same system that captures, approves, and pays the pay application. Where most AP vendors stop at generic ERPs, Corpay connects to the platforms construction finance teams actually run:

• Sage Intacct Construction, Sage 300 CRE, and Sage 100 Contractor

• Acumatica Construction Edition

• CMiC

• eCMS from Computer Guidance Corporation

• Viewpoint Vista

• Foundation Software

• Deltek

It also covers the generic systems (NetSuite, Microsoft Dynamics 365, QuickBooks, Oracle, and SAP) when a contractor runs a mixed stack. On top of the integration, the AP automation workflow reads the G702 and G703 structure on capture, routes retainage-release amendments through their own approval path, posts to the right project and cost code, and pays suppliers through a managed service that handles enrollment, delivery, and virtual-card rebate capture. A May 2025 case study with heavy-highway contractor S.T. Wooten, built on the eCMS integration, is public evidence of that depth.

The payoff is the AP team's time. Roughly 40% of ENR 400/600 contractors use Corpay to cut manual AP work, according to Corpay's construction practice. If you want to see how retainage tracking, ERP sync, and payment delivery fit your project mix, set up a working session built around your portfolio, your ERP, your retainage workflows, and your payment volume at Corpay for construction.

Frequently asked questions

What is retainage in construction?

Retainage in construction is the portion of each progress payment, usually 5 to 10 percent, that the paying party withholds until the work is substantially or fully complete. It serves as security that the contractor will finish the job and resolve punch-list items before the held funds are released.

What is the difference between retainage and retention?

There is no practical difference. "Retainage" is the standard US term and "retention" is the UK and Commonwealth term for the same holdback, and some US owner-side accounting teams use "retention" as well. On a domestic project they're interchangeable; on international work, the surrounding statutory rules differ even though the concept is identical.

What percentage of retainage can be withheld?

Retainage is typically 5 to 10 percent of each progress payment. The exact rate is set by the contract but capped by state law, and a growing number of states limit it to 5 percent, especially for private work. Larger contracts often step the rate down to 5 percent partway through the project.

When is retainage typically released?

Retainage is usually released in stages: a step-down at substantial completion, then the remaining balance at final completion once the punch list is closed and a final unconditional lien waiver is in hand. In practice the full release lands anywhere from 30 to 365 days after final completion.

Is retainage an asset or a liability?

It is both, depending on which side of the contract you're on. The party billing for the work records retainage receivable as an asset, while the party withholding payment records retainage payable as a liability. The same retained dollar appears as a receivable on one balance sheet and a payable on the other.

What line of AIA G702 shows retainage?

Retainage is shown on Line 9 of AIA Document G702, the "Total Retainage" line, which sums the retainage on completed work and on stored materials. The supporting line-item detail lives on the companion G703 continuation sheet, the schedule of values for the pay application.

Can I file a mechanic's lien for unpaid retainage?

In most states, yes. Unpaid retainage is generally lienable, subject to each state's lien-filing deadlines, notice requirements, and any waivers already signed. Because the rules and time limits vary widely by state, a contractor protecting retainage should track the lien deadline from the start of the job, not the end.

What is a retention bond?

A retention bond is a surety bond a contractor posts in place of cash retainage, letting the owner release the held funds while keeping the same financial protection. It's used mostly on larger projects, where freeing the retained cash for working capital is worth the cost of the bond.

How is retainage recorded in accounting?

The billing contractor debits retainage receivable and credits revenue when the work is performed, recognizing the income under ASC 606 before the cash is collected. The withholding party debits the subcontractor cost and credits retainage payable, then debits retainage payable and credits cash when the funds are finally released.

David Luther

Product Marketing Program Manager

David Luther, MBA is a product marketing program manager with years of experience in commercial banking, finance, and technology sectors, with research and writing appearing in financial publications.

AP Automation

Payments Automation