Retainage: Definition and Meaning

Definition

Retainage is a portion of a contract payment withheld until specified conditions are met, often until project completion or acceptance.

Why It Matters

For contractors, retainage can affect accounts receivable, cash flow, working capital, project reporting, and collection planning. The amount, timing, conditions, and rights associated with retainage depend on the contract and applicable law.

Management should track retainage separately where appropriate and understand its effect on current and projected cash needs.

Example

A project owner retains 10 percent of each progress payment until the project is complete or other contractual conditions are met.

Related Terms

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TYS provides accounting, tax, construction-accounting, and business-advisory support to closely held businesses, contractors, individuals, and families. With offices in Fairport, New York, and Walnut Creek, California, TYS helps clients better understand their financial information and prepare for important decisions.

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The information on this page is provided for general educational purposes only and is not accounting, tax, legal, financial, insurance, bonding, or business advice. Consult qualified professionals regarding your particular circumstances.

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