Retainage (Retention)
Retainage, also called retention, is a percentage of each construction progress billing that the owner or general contractor withholds until the work is substantially or fully complete. It functions as a contractual holdback that secures performance, and it materially affects how much of a construction receivable a lender or factor will actually advance.
What retainage is
In construction and other progress-billed projects, the customer does not pay the full amount of each invoice as work proceeds. Instead, a portion of every pay application is held back. That withheld portion is called retainage (or retention). Common rates run between 5% and 10%, and the contract usually specifies when the held funds are released: at substantial completion, at final completion, or sometimes stepped down as the project passes milestones.
The purpose is performance security. By keeping a slice of the contract value, the owner or general contractor has leverage to ensure punch-list items are finished, deficiencies are corrected, and lien waivers are delivered before the last dollars change hands. Retainage can flow in both directions: an owner withholds from a general contractor, and a general contractor in turn withholds from its subcontractors.
How retainage appears on a pay application
A typical progress billing shows the work completed to date, the amount previously billed, the current amount earned, and a retainage line that subtracts the withheld percentage. The net is what the customer is actually obligated to pay now. The retained balance accumulates over the life of the job and is invoiced separately, often as a final retainage release billing once the work is accepted.
| Item | Amount |
|---|
| Work completed this period | $100,000 |
| Less retainage at 10% | -$10,000 |
| Net currently payable | $90,000 |
Why it matters for factoring and ABL eligibility
Lenders treat the retained portion differently from the currently payable portion because it is not due on normal terms. The retainage is contingent on completion and acceptance, its timing is uncertain, and it can stretch far beyond standard aging buckets. For those reasons a factor or asset-based lender frequently classifies retainage as an ineligible receivable or applies a separate, lower advance rate to it, even when the rest of the invoice qualifies.
This has a direct effect on funding. A construction invoice may look large, but if 10% is locked up in retainage, only the net is reliably advanceable. Practically, this can mean:
- The retained balance is carved out of the borrowing base or excluded from eligible collateral entirely.
- Aging on retainage is measured from the release date or completion, not the original billing date, to avoid distorting days sales outstanding.
- Funders verify the contract terms, completion status, and lien-waiver position before advancing against any retained amount.
Operational considerations
Because retainage release depends on documented completion and clean lien positions, accurate tracking matters. The retained amount must be reconciled against each pay application, matched to the eventual release billing, and aged correctly so it is not double counted or mistaken for a delinquent receivable. Disputes, backcharges, and partial releases are common, which makes disciplined accounts receivable reconciliation essential for anyone funding construction receivables.
Retainage is an industry term, not a Zolvo product. Zolvo helps lenders and factors keep construction receivables, including retained balances, accurately tracked and reconciled as payments and releases come in.