By The AR Agent team · · 7 min read
Retainage is a portion of each progress payment on a construction contract that the payer holds back until the work is finished. It is money you have earned, paid once the release conditions in the contract are met.
For a subcontractor, retainage means a slice of every invoice sits unpaid for months. Getting it back comes down to knowing the contract, tracking it separately, and asking the moment it is due. This page is general information about US practice, not legal advice.
Retainage (also called retention) is money withheld from each payment to make sure the work gets finished properly. It protects the owner or general contractor if work is left incomplete or defective.
Say a subcontractor has a $100,000 contract with 10 percent retainage. It bills $40,000 for work done in the first month. The general contractor approves the full $40,000 but pays $36,000. The other $4,000 is retainage. By the end of the job, if every bill is treated the same way, $10,000 is held, and that amount is only paid when the release conditions are met.
The rate is set by the contract, but law limits it on some projects. A few examples:
Private work can follow different rules. Read the contract, then check the law for the state where the project is.
On a construction pay application, retainage is usually shown as a line below the work completed to date. A simple layout:
| Line | Amount |
|---|---|
| Work completed to date | $40,000 |
| Less retainage (10%) | $4,000 |
| Total earned less retainage | $36,000 |
| Less previous payments | $0 |
| Amount due this period | $36,000 |
On later applications, the retainage line is cumulative: the total held on all work to date.
In your accounting system, keep retainage separate from the normal invoice balance, either in its own receivable account or as a separate invoice raised when it is due. Your aging report should not show it as overdue before it is due, or hide it once it is.
Yes, in practice. The federal rules say "retainage". California's Public Contract Code says "retention". Both mean money held back from progress payments until completion.
When the contract says, within any limits the law sets. Common triggers are:
Expect release to need paperwork: a final pay application, close-out documents, and often a lien waiver.
Some do, at least for public work, and the rules vary. California and Florida cap the percentage, as above. Florida also says that when a public entity pays retainage for a subcontractor's work, the contractor must pass it on in time.
Federal work has its own rules too. The Prompt Payment Act lets a prime contractor and subcontractor agree to retain a set percentage of each progress payment, and sets out how withholding must be notified.
There is no single national rule. Check the statute for the state and type of project before you assume a deadline applies.
Retainage is easy to forget because it is not due for months. A simple routine:
A statement of account that lists retainage separately for each project helps the general contractor's accounts team see what they owe and why.
Subject: Release of retainage - [Project name], [Contract or PO number]
Hi [First name],
Our work on [Project name] reached [substantial completion / final
completion / completion of our scope] on [Date].
Under [Clause reference] of our subcontract, the retainage of
[Amount] is now due for release. A breakdown by pay application is
attached.
Also attached:
- final pay application [Number]
- [Close-out documents, e.g. warranties, O&M manuals]
- [Conditional lien waiver for final payment, if required]
Could you confirm the date this will be paid, and let me know if
anything else is needed before release?
Thanks,
[Your name]
[Company name]
On some public work, no. California's Public Contract Code 7201 says a subcontract's retention percentage cannot exceed the prime contract's. Otherwise it comes down to your subcontract, so read it before you sign.
Check your subcontract. If it does not tie your release to theirs, ask for payment on the agreed date. If it does, ask when the owner's release is expected and follow up then.
Possibly. Some state prompt payment laws set interest on late payments. Florida's law for local government construction, for example, sets 2 percent a month or the contract rate, whichever is greater. Your contract may also include a late payment clause. Our guide to late fees on invoices in the US explains the general position.
Often, yes. Many general contractors ask for a waiver with the final payment. Sign a conditional waiver until the money has cleared. Our page on lien waivers explains the difference.
The AR Agent follows up overdue invoices by email, using the due dates in QuickBooks or Xero, so a retainage invoice raised when release is due gets chased like any other. It reads what the general contractor writes back. If a reply says the release is waiting on a lien waiver, close-out documents or the wrong contact, it identifies that blocker instead of repeating the request. A reply like "it goes in the next payment run" becomes a tracked payment promise, followed up if the date passes. When a reply needs judgement, it asks your team. Every email and promise is kept on the customer's record.
Talk to us: our AI agent chases your invoices until you are paid.
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