Retainage

What is Retainage?

Retainage is a contractual holdback where the general contractor or project owner withholds a percentage of each progress payment until the project reaches substantial completion or final acceptance. In commercial construction, retainage typically ranges from 5 to 10% of each draw.

Retainage is not a penalty. It is a performance guarantee ensuring the contractor completes the work. But from a cash flow perspective, retainage means your revenue is always less than your invoices. A $200K draw with 7.5% retainage deposits $185K while $15K remains held until release terms are met.

Retainage accumulates across active projects. Eight projects each holding $20K to $45K in retainage can tie up $200K or more in earned but inaccessible cash. Most construction financial tracking treats retainage as an accounting entry rather than an operational cash constraint. Learn more in our guide on how retainage starves construction cash flow. Tracking expected release dates per project turns retainage from a surprise into a scheduled inflow you can plan around.

Why it matters

Planning around bank balance without accounting for retainage overstates available cash by 5 to 10% of total project value. Construction firms that exclude retainage from deployable funds make better decisions about subcontractor payments and new project commitments.

Formula

Retainage Held = Draw Amount × Retainage Percentage

Example

How RunwayCal helps

Common mistakes

• 1Including retainage in available cash when planning subcontractor payments
• 2Not tracking retainage release dates per project
• 3Treating retainage as revenue that has already converted to cash