Retention/Retainage Cash Flow Guide for Contractors

Plan around withheld payments without starving operations.

Trade specific context: retention and retainage

Retention can strain cash flow even on profitable projects, so it should be managed as delayed cash, not available cash. Early closeout discipline shortens how long funds stay locked.

USA vs Australia terminology

Using familiar local wording in quotes, invoices, and reminders reduces confusion and helps approvals move faster.

Recommended billing model

Model: retained percentage cash planning

1. Agree on payment terms and approval steps before work starts.
2. Invoice immediately when each billable stage is complete.
3. Schedule reminders before the due date and on the due date automatically.
4. Escalate overdue accounts on a clear, fixed schedule.

Common blocker and fix

Frequent blocker: closeout docs incomplete

Fix: Attach the right proof and references when you send the invoice, then confirm receipt with the approver the same day.

Example: Closeout documents are prepared during the job, not after completion, so retention release starts immediately at handover.

Common questions for retention and retainage

How should contractors plan around retainage?
Forecast release timing and treat retained cash as delayed inflow.

What unlocks retention release faster?
Complete closeout documents and defect rectification proof early.

Should retainage be tracked separately?
Yes. Separate tracking avoids overestimating available cash.

Metrics to review weekly

• Overdue value by aging bucket.
• Average days to payment by client type.
• Reminder response rate and promise to pay completion.
• Dispute volume and resolution lead time.

Note: Regulatory requirements differ by state and country. Use local legal and accounting advice for contract and statutory compliance.

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