Retainage Is Your Money on Hold
You finish a $50,000 kitchen remodel. The customer pays $45,000 and holds back $5,000 until the punch list is done and the final walkthrough clears. On paper you earned $50,000. In the bank you have $45,000. The other $5,000 sits on someone else’s books. Unless your own books track the holdback, nobody does.
Retainage is common on commercial work and on larger residential jobs, usually 5% or 10% of each progress payment. Spread across four or five open jobs, the total grows fast. Open invoices show up on every A/R report. Retainage often shows up nowhere.
Why Retainage Gets Lost
Two common ways of recording retainage both cause trouble.
The first is to ignore the withheld amount entirely. The invoice goes out for $45,000, the $45,000 comes in, and the $5,000 never shows up anywhere. Months later the job closes, someone remembers the holdback, and a new invoice goes out with no history behind the number.
The second is to invoice the full $50,000 and leave the $5,000 sitting open in accounts receivable. Now your A/R report looks like the customer is late, your collections calls go to the wrong people, and your aging report stops telling the truth. Neither version tells you which job owes what.
Either way, your books stop answering a simple question: how much money do customers still owe me, and when does each dollar come due? Good contractor bookkeeping answers both parts.
The Setup in QuickBooks Online
You set this up once, and every job after follows the same path.
- Create an account called Retainage Receivable. Choose Other Current Assets as the account type. This account holds every dollar customers have withheld.
- Create a service item called Retainage and point the item at the Retainage Receivable account.
- On each progress invoice, add the Retainage item as a negative line. On a $50,000 invoice with 10% held back, the line reads minus $5,000 and the invoice total drops to $45,000. The $5,000 moves into Retainage Receivable instead of disappearing.
- When the job closes out, create one more invoice using the Retainage item for the full amount held, in this case $5,000. The customer pays, and the Retainage Receivable balance for the job returns to zero.
Now your balance sheet shows one line with the total retainage owed to you across every job. Your A/R aging only shows money due right now. And the closeout invoice comes straight from the books, not from memory.
What Changes Once Retainage Is Visible
Cash flow planning gets honest. If $18,000 in retainage sits across four jobs, you know the money exists, and you know the money stays out of reach until each job closes. You stop counting the holdback as cash you have.
Closeouts get faster. With the amount tracked per job, the final invoice takes minutes instead of a search through old pay applications.
Your tax preparer gets clean numbers. A separate retainage account shows what was billed, what is held and what was collected, so year-end work goes faster for whoever prepares your return.
Watch the Short Version
This week’s QuickBooks Tip of the Week video walks through the same setup with the $50,000 kitchen remodel example. Follow Sullivan Bookkeeping Services on TikTok, Instagram or YouTube for a new tip every Thursday.
Want Help Setting This Up?
If retainage, progress billing and job costing all live in one tangled set of books, a bookkeeping cleanup gets everything current and sorted by job. Book a free 15-minute consultation and I’ll look at how your retainage is recorded today and show you the two or three changes I’d make first.