Retainage is the portion of a contract amount that the owner holds back until the project is substantially complete. Usually 5-10% on construction projects, it protects the owner and gives you incentive to finish punch list items. From a bookkeeping standpoint, retainage requires separate tracking because it represents money you’ve earned but can’t collect yet.

When you bill for completed work, split the invoice into two parts. The collectible amount goes to accounts receivable like normal. The retainage portion goes to a separate retainage receivable account. This distinction matters. If you lump everything into one receivable account, you’ll show $100,000 collectible when really $10,000 of that is being held back for months.

Record the full revenue when you bill, not when you collect the retainage. The work is done and you’ve earned the money even though part of it is withheld. Revenue recognition happens when you perform the work and bill for it. The timing of collection is a separate issue that affects your cash position, not your income.

If you’re holding retainage from subcontractors, track it the same way on the payable side. Create a retainage payable account separate from regular accounts payable. When a sub invoices you for $20,000 with 10% retainage, record $18,000 in accounts payable and $2,000 in retainage payable. You know exactly what you owe when the project closes out.

Track retainage by project, not just as a lump sum total. You need to know the Johnson project has $12,000 in retainage coming while the Park City job has $4,500. When projects close out at different times, you need visibility into what’s releasing and when. This is where proper construction job costing becomes essential.

At project completion, bill for the retainage release. This isn’t new revenue since you already recorded it when you billed originally. You’re moving money from retainage receivable to regular accounts receivable so you can actively collect on it. The owner now owes you that 5-10% they’ve been holding.

In QuickBooks, you can set up retainage using dedicated asset and liability accounts for the receivable and payable sides. QuickBooks Online Advanced has built-in retainage features that make this easier. The key is consistency. Whatever method you choose, apply it to every job so your reports mean something. A real estate bookkeeper in American Fork familiar with construction accounting can configure this properly from the start.

Don’t let retainage slip through the cracks at project closeout. It’s easy to finish a job, move on to the next one, and forget to bill for release. Build retainage collection into your closeout checklist. That’s money you’ve already earned sitting in someone else’s account.

Factor retainage into your cash flow planning. On a $300,000 project with 10% retainage, you won’t see that final $30,000 for months after the work is done. Your books should show this clearly so you’re not caught off guard when cash is tight despite strong revenue numbers. Knowing what’s held back and when it releases helps you plan draws on credit lines and time equipment purchases.