Retainage: How It Works and How to Show It on Invoices

Quick answer: Retainage (also called retention) is a percentage of each progress payment, usually 5% to 10%, that the project owner or general contractor holds back until the work is substantially or fully complete. It gives the payer leverage to make sure the job is finished properly. The contractor shows it as a deduction on each progress invoice and then bills for its release at the end.

For contractors and subcontractors, retainage can be a large part of profit sitting in someone else's bank account for months. Getting it right on every invoice, and knowing when and how to ask for it back, matters. This guide explains how retainage works, typical rates and legal limits, how to show it on a progress invoice and how to invoice for retainage release.

What is retainage in construction?

Retainage is a contractual holdback. On each progress billing, the customer pays the value of work completed minus a set percentage. The amounts held accumulate until a defined event, typically substantial completion, final completion or acceptance, when the balance is released.

It flows down the chain: the owner withholds from the general contractor, and the general contractor usually withholds the same or a similar rate from subcontractors. Suppliers of materials are less often subject to it.

Why owners use retainage

• Incentive to finish the punch list and closeout documents.
• A fund to fix defects or complete work if the contractor walks away.
• Protection against mechanics liens from unpaid subcontractors.

How much is retainage?

Rates are set by the contract within any legal limits. Common patterns:

Setting	Typical approach
US federal construction contracts	FAR 52.232-5 allows the contracting officer to retain up to 10% of a progress payment when progress is not satisfactory; it is not meant to be automatic
State public projects	Many states cap retainage at 5% or 10%, and some require reducing it after 50% completion
Private commercial projects	Often 5% to 10% by contract; some states cap private retention too (California, for example, caps it at 5% on many private works)
Residential remodels	Less common; sometimes a small final payment is held until the punch list is done

Rules vary a lot by state and by public versus private work, and they change, so check the current statute and your contract. For federal work, the rule is in FAR 52.232-5 and guidance in FAR 32.103. Florida's public works statute, for instance, allows up to 10% until the project is 50% complete and then requires reducing it to 5%. This is general information, not legal advice.

How to calculate retainage on a progress invoice

1. Work out the value of work completed to date (plus stored materials if allowed).
2. Multiply by the retainage rate to get total retainage held to date.
3. Subtract retainage from the completed value to get total earned less retainage.
4. Subtract what you previously billed (net of retainage).
5. The result is the current amount due.

Worked example over three pay applications

A subcontractor has an $80,000 electrical subcontract with 10% retainage, reduced to 5% after 50% completion (with previously held retainage left in place for simplicity).

Pay app	Completed to date	Retainage held to date	Earned less retainage	Previously billed	Due this period
#1	$20,000	$2,000 (10%)	$18,000	$0	$18,000
#2	$40,000	$4,000 (10%)	$36,000	$18,000	$18,000
#3	$64,000	$5,200 ($4,000 + 5% of $24,000)	$58,800	$36,000	$22,800
#4	$80,000	$6,000 ($4,000 + 5% of $40,000)	$74,000	$58,800	$15,200
Release	$80,000	$0	$80,000	$74,000	$6,000

By the end, $6,000 (7.5% of the subcontract) is held. If the subcontractor's profit margin on the job is 10%, retainage is three-quarters of the profit, which is why release timing matters so much for cash flow.

How to show retainage on an invoice

Use a summary block under the line items. Here is how pay application #3 above could look:

Description	Amount
Original subcontract sum	$80,000.00
Approved change orders	$0.00
Work completed to date (80%)	$64,000.00
Retainage held to date (10% to 50%, then 5%)	-$5,200.00
Total earned less retainage	$58,800.00
Less previous applications (#1, #2)	-$36,000.00
Current amount due	$22,800.00
Balance to finish including retainage	$21,200.00

Tips:

• Label it clearly: "Retainage held to date" rather than just "Less 10%."
• Show cumulative figures so each invoice stands on its own.
• Track retainage receivable separately in your books or invoice tracker, not mixed with ordinary overdue amounts.
• If you use AIA forms, retainage appears on the G702 summary and G703 continuation sheet; see AIA G702/G703 billing.

How to invoice for retainage release

Retainage is not paid automatically. You usually need to ask for it with a separate invoice or final pay application once the release conditions are met.

1. Check the trigger. Substantial completion, final completion, owner acceptance or a fixed period after completion, as the contract says.
2. Finish closeout items. Punch list, warranties, as-built drawings, O&M manuals, attic stock, final inspections.
3. Collect final lien waivers. Yours and your lower-tier subcontractors' and suppliers'. See our lien waiver guide.
4. Issue the release invoice. Reference the contract and all pay applications, show total retainage held and request it as a single line.
5. Follow up on schedule and note any statutory release deadline in your cover email.

Example retainage release invoice

Description	Qty	Amount
Release of retainage, electrical subcontract #E-2291, Elm Street Medical Office, pay apps #1 to #4	1	$6,000.00
Total due (Net 30)		$6,000.00

Note in the invoice: "Substantial completion certified October 15, 2026. Final unconditional lien waiver attached." You can create this kind of single-line release bill in our free invoice generator in a few minutes.

Common retainage mistakes

• Not reading the retainage clause before bidding. Price the cost of waiting into your bid.
• Calculating retainage on this period only instead of to date, which makes the totals drift.
• Forgetting to bill the release. It is surprisingly common for retainage to sit unclaimed.
• Signing an unconditional final waiver before payment. Use conditional waivers until funds clear.
• Missing statutory deadlines. Prompt payment and lien deadlines can run from completion, not from when you get around to invoicing.
• Treating retainage as a bad debt too early. It is a receivable with conditions; track it separately.

How to negotiate better retainage terms

Retainage is set in the contract, which means it is negotiable before you sign, especially on private work. Options to raise:

• A lower rate: 5% instead of 10%, particularly if you have a strong track record with the owner.
• Reduction at 50% complete: retainage drops to 5% or zero once half the work is done satisfactorily.
• Line-item release: early trades (site work, foundations, steel) get their retainage released when their scope is accepted, not at the end of the whole project.
• No retainage on materials or equipment purchased specifically for the job.
• A retention bond or escrow in place of cash holdback, where state law and the owner allow it.
• A firm release date: for example, within 30 days of substantial completion, with interest if late.
• Pay-when-paid clarity: if you are a subcontractor, understand whether your retainage depends on the owner releasing the general contractor's.

How retainage is recorded in the books

Most contractors track retainage in a separate account, often called retainage receivable (for amounts customers hold from you) and retainage payable (for amounts you hold from subcontractors). Using the subcontractor example above, after pay application #3 the books would show $58,800 billed, $5,200 in retainage receivable and, once paid, nothing else open. Keeping retainage separate from ordinary accounts receivable stops it from making your days sales outstanding look worse than it is, and makes it easy to see how much cash is locked up across all jobs.

A simple monthly report with each job, retainage held, the release trigger and the expected release date is often the most valuable cash flow tool a small contractor has. When a release date passes, it becomes a collection item like any other overdue invoice, and the Prompt Payment Act or your state's prompt payment law may give you interest rights on public work.

Retainage vs related terms

Term	What it is
Retainage / retention	Holdback from progress payments until completion
Retainer	Advance payment to secure a professional's services; see retainer invoice
Deposit	Upfront payment before work starts
Holdback (Canada)	Statutory lien holdback under provincial construction acts, similar in effect
Performance bond	Surety guarantee that the work will be finished, sometimes used instead of retainage

Retainage is a normal part of construction billing, but it only works in your favor if every progress invoice shows it clearly and you chase its release as soon as the conditions are met. To produce progress and retainage release invoices with clean totals, use our free invoice generator. It needs no sign-up and downloads a PDF built entirely in your browser.