Retainage is a percentage of every progress payment — commonly 5-10% — that a GC or owner withholds as security until a project, or a subcontractor's scope within it, reaches substantial completion or final closeout. For a subcontractor especially, that means a meaningful piece of every invoice is money you've earned but won't actually collect for months.
How Retainage Works
On each progress payment, the GC withholds an agreed percentage — often 10% early in a project, sometimes stepping down to 5% or 0% as it nears completion — and releases the retained amount after final inspection, punch list completion, and paperwork like lien waivers are settled.
Why It Hits Subcontractors Harder Than GCs
A GC typically has retainage held on the amounts they bill the owner, but they're also the one holding retainage back from every sub underneath them — so the cash flow squeeze lands hardest on subs, who are on the receiving end of a withhold with little equivalent leverage further down the chain.
Retainage Is a WIP Problem, Not Just a Cash Flow Problem
This is exactly the gap between what's invoiced and what's actually been collected or earned — the same unbilled and unearned revenue framing that applies to percentage-of-completion accounting generally. Retainage held on a contract that's otherwise fully performed is real revenue you've earned that simply hasn't hit your bank account yet, and it needs to be tracked as such, not written off or forgotten until someone asks about it.
How to Track Retainage Without Losing Track of It
- Record the retained percentage on every invoice as its own line, not folded into "amount paid"
- Track total retainage held across all active contracts, not just per invoice
- Flag contracts where retainage should be releasing soon — substantial completion, punch list done — so you follow up instead of waiting to be paid
- Don't count retainage as "lost" money — it's collected revenue, delayed, not written off
PunchProfit tracks what's billed and what's been paid on every job. Retainage isn't a separate field, so note what's held back on the invoice and keep it open until it's released — that way it doesn't disappear into a spreadsheet.