Glossary · operations

Retainage

Also called retention, retainage receivable, holdback (construction).

A percentage of each construction progress payment withheld by the owner or general contractor until the project is complete and accepted, sometimes for months after the work was done.

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

What it means

Withholding a slice of every progress payment is standard practice in construction contracting. The amount is set by the contract and, on public projects, frequently by state statute - several states cap the permitted percentage, require a reduction at substantial completion, or mandate release within a stated period. The rules differ substantially between states and between public and private work.

The effect on the contractor is a receivable that exists, is undisputed, and cannot be collected until a future event that someone else controls. On a long project the accumulated retainage can exceed the contractor's entire profit on the job.

Funders treat it separately from ordinary receivables. Most factors and asset-based lenders exclude retainage from the borrowing base entirely, or advance against it at a much lower rate, because its collection date is unknown, it is contingent on completion and acceptance, and it is the fund the owner will reach for first if anything is defective. A subcontractor whose invoices are financed will therefore find a portion of every invoice unfinanced by design.

Where this one catches people

Retainage is not slow-paying receivable, it is a contingent one, and financing built on invoice face value quietly excludes it. A subcontractor advancing against invoices that each carry a retainage slice is being funded on a smaller base than the headline advance rate suggests - and the retained balance is exactly the money owed at the point in the job when cash is tightest.

Worked through

Illustration. A $900,000 subcontract billed monthly over nine months with 10% retainage. Each $100,000 progress billing pays $90,000, and $10,000 accrues to a retainage balance.

By month nine the contractor has invoiced the full $900,000 and been paid $810,000, with $90,000 outstanding - released only after completion, punch list and acceptance, which may be another 60 to 90 days. If the factor excludes retainage from eligibility, none of that $90,000 was ever financeable, and it represents the whole of the margin on many jobs of this size.

Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.

Where you will meet this term

Invoice Financing Asset-Based Lending

Read next

Advance rateThe share of an asset's eligible value a funder will put up front, used in factoring, asset-based lending and… Borrowing baseThe pool of eligible collateral, each class multiplied by its own advance rate and reduced by reserves, that … Invoice factoringSelling receivables to a third party at a discount for immediate cash, with the buyer taking over collection … Mechanic's lienA statutory claim against real property filed by a contractor or supplier who was not paid, which can outrank… Net 30Trade credit terms giving a customer thirty days from the invoice date to pay in full, with net 15, net 60 an… ReceivableMoney a customer owes for goods delivered or services already performed - the asset that factoring buys and a… ReserveThe portion of an invoice's face value a factor holds back at funding and releases, less fees, once the custo…

Retainage — common questions

What does retainage mean?

A percentage of each construction progress payment withheld by the owner or general contractor until the project is complete and accepted, sometimes for months after the work was done.

Where does retainage catch people out?

Retainage is not slow-paying receivable, it is a contingent one, and financing built on invoice face value quietly excludes it. A subcontractor advancing against invoices that each carry a retainage slice is being funded on a smaller base than the headline advance rate suggests - and the retained balance is exactly the money owed at the point in the job when cash is tightest.

Is retainage the same as an interest rate?

Retainage is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does retainage apply to?

Invoice Financing, Asset-Based Lending.

Is there a worked example of retainage?

Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.

What else should I read alongside retainage?

Advance rate, Borrowing base, Invoice factoring, Mechanic's lien, Net 30.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.