Retainage is the portion of payment that project owners or general contractors hold back until work is completed and approved. In Houston construction, this is typically 5% to 10% of the contract amount. Your books need to track this separately from normal receivables because retainage behaves differently and directly affects your cash flow planning.

Create a separate Retainage Receivable account in QuickBooks. When you invoice for completed work, split the entry. The collectable portion goes to standard Accounts Receivable. The held-back portion goes to Retainage Receivable. This separation shows you what you can actually expect to collect in the near term versus what’s tied up until the project wraps.

Say you send a progress billing for $50,000 and the contract includes 10% retainage. Record $45,000 to Accounts Receivable and $5,000 to Retainage Receivable. You’ve earned all $50,000, but only $45,000 is currently collectible. Your financial statements will show the full revenue earned while your AR aging shows what’s actually due now.

Release retainage when the project reaches the milestone defined in your contract. This usually happens after final completion, punch list sign-off, or a specified number of days after substantial completion. At that point, move the amount from Retainage Receivable to regular Accounts Receivable and invoice for it. Track this carefully because retainage can sit for months and adds up across multiple jobs.

The cash flow impact catches many contractors off guard. You might have $150,000 in retainage receivable spread across active jobs. That’s money you’ve earned and will eventually collect, but you can’t use it to pay suppliers or crew this week. Understanding your true cash position requires knowing the difference between total receivables and what’s actually collectible today.

Proper construction job costing includes tracking retainage by project. When you’re analyzing job profitability, you need to know how much retainage is outstanding on each job and when you expect to collect it. A project that looks profitable on paper but has $30,000 in retainage sitting for six months ties up working capital you could use elsewhere.

If your current books don’t separate retainage from regular receivables, your AR reports are misleading. A bookkeeping cleanup can restructure your accounts to track retainage properly and give you accurate visibility into what’s actually collectible. Getting this right from the start saves confusion when you’re bidding new work and wondering why cash is tight despite strong billings.