What is retainage in a construction contract?

Retainage (also called retention) is a portion of each payment — usually 5% or 10% — that the client or general contractor withholds until the project is fully complete and accepted. It is held as security against defects, unfinished work, and the contractor walking off before the job is done properly.

How much retainage is normal?

Typically 5% to 10% of each progress payment. Some contracts reduce the percentage at substantial completion — for example dropping from 10% to 5% once the job is halfway done. Always check the specific percentage and release terms before signing.

How do I get my retainage paid?

Treat it as a separate receivable. As soon as the job reaches the milestone that triggers release — usually final inspection and punch-list completion — send a dedicated retainage invoice and follow up on it like any other unpaid balance. The biggest cause of lost retainage is simply forgetting to invoice for it.

Retainage Explained for Contractors

What retainage is and why it exists

Retainage is money you've earned but won't be paid yet. On many commercial and larger construction contracts, the client or general contractor withholds a percentage — commonly 5% or 10% — from every progress payment, holding it back until the entire job is finished, inspected, and signed off.

The logic from the payer's side is straightforward: it's a security deposit against you walking off, leaving defects, or not finishing punch-list items. The held-back money is the leverage that gets the last 2% of the job done properly. From your side, it's a chunk of your profit sitting in someone else's account, sometimes for months after you've done the work.

If you only do residential service work, you may never encounter retainage. If you sub for general contractors or take on commercial projects, you almost certainly will — and you need to plan for it.

How retainage hits your cash flow

Here's the trap: that withheld 5–10% is often your entire profit margin on the job. If you're working at a 10% net margin and 10% is being retained, then until the retainage is released, you've covered all your costs and made nothing. You're effectively financing the whole project and waiting on completion to actually profit from it.

And "completion" can be slow. Retainage release often waits for final inspection, the last punch-list items, and sometimes a lien-waiver process — which can stretch weeks or months past your last day on site. Meanwhile you've paid your suppliers and your crew in full. This is why retainage is one of the most underestimated pressures on contractor cash flow.

Price and plan for it up front

Because retainage delays your profit, you have to account for it when you bid, not discover it later. Two practical moves:

Build the delay into your pricing. If a meaningful slice of your money is locked up for months, that financing cost is real and belongs in your margin — especially on long jobs.
Front-load where the contract allows. Structuring your progress draws so you recover costs early means the retained amount is genuinely profit being held, not unrecovered costs. Pair this with sound progress billing.

Also read the retainage terms before you sign. Know the percentage, exactly what triggers release, and whether there's a cap or a reduction at substantial completion. Some contracts drop retainage from 10% to 5% once the job is half done — that's worth knowing.

Tracking and recovering what you are owed

The most common way contractors lose retainage isn't a dispute — it's forgetting to chase it. The job ended, you moved on to the next one, and the held-back amount never got invoiced because it wasn't on anyone's radar. Months later you realise there's a few thousand dollars you never collected.

Treat retainage as a separate receivable with its own follow-up. The moment the job hits the milestone that triggers release, send a dedicated retainage invoice and chase it like any other unpaid invoice — see how to follow up on unpaid invoices.

Fieldpaid helps by keeping every invoice and its payment status visible in one place, so a held-back balance doesn't quietly disappear — you can raise the retainage invoice when the job completes and let the automatic reminders chase it until it's paid.

Retainage Explained: What Contractors Need to Know About Held-Back Payments