Retainage or retention, in the construction industry, is an agreed upon portion of the contract price that is deliberately withheld until the work is substantially complete to assure that the contractor or subcontractor will satisfy its obligations and complete a construction project. Retainage is often confusing all by itself, and then there is also a lot of very confusing terminology as well. But there is a difference between Retainage Receivable and Retainage Payable.
- Retainage Receivable is money that is owed to you, while
- Retainage Payable is money that you owe to someone else
Usually, if you are a General Contractor you will need to track both Retainage Receivable (for money due to your company) and Retainage Payable (money you owe to your Subcontractors).
As a Subcontractor, you would only need to track Retainage or Retention Receivable for the money that is due to your company; unless of course you hire lower-tier Subcontractors, at which point you would also need to track Retainage Payable.
To add to the confusion, QuickBooks (not even the Contractor version) doesn’t really handle retainage tracking automatically, like some of the more costly construction specific software. You pretty much have to “make it” track it – especially if you want your books to be accurate.
Retention can be tracked in QuickBooks by using specifically created items in your Items List and specially created accounts in your Chart of Accounts.
For example, Retainage Receivable (money owed to you) should be set up as an Other Current Asset in your Chart of Accounts. Retainage Payable (money you owe) on the other hand, should be set up as an Other Current Liability account.
From here it get’s a little trickier, mainly because there is not just one way in which to track the money that you are owed on invoices your submit for payment – or – money that you owe to your subcontractors.
If you would like to learn about various methods in which to track retention or retainage, contact me about some one-on-one consulting/training time to discuss your needs.