What Is Retainage on a Contractor Invoice? The 5-to-10 Percent Holdback
What is retainage on a contractor invoice? You bill $100,000 for the month's work and the check arrives for $90,000. The missing $10,000 is not a short payment. It is retainage: the slice of each progress payment the client holds until the job is finished.
The standard hold is 5 to 10 percent. It exists so the owner has leverage if you walk off the job or leave a punch list unfinished, and it is completely normal on commercial and public work. What is not normal is how many contractors track it: nowhere. The held money sits off the books, and at closeout nobody remembers exactly how much is owed. Rabbet's 2024 Construction Payments Report found the average construction invoice already takes about 90 days to get paid; retained funds usually wait far longer than that. The contractors who get their retainage back are the ones who can prove what is owed, line by line.
How to show retainage on a contractor invoice
Put it on the invoice as its own line, every time. Here is the block I would use, with a 10 percent hold on a $400,000 contract where $170,000 has already been billed:
Contract amount: $400,000
Work completed this period: $100,000
Less retainage (10%): -$10,000
Amount due this invoice: $90,000
Total retainage held to date: $27,000
Remaining contract balance: $130,000
Two things to notice. First, the running totals matter as much as the current invoice: total retainage held to date ($17,000 from the earlier billings plus $10,000 now) and the remaining balance. Without those, six months later you are reconstructing the job from a shoebox of PDFs. Second, on your books the $27,000 is a retainage receivable, an asset, money you have earned but cannot collect yet. On the owner's books it is a retainage payable. If you are withholding from subcontractors, their held amounts are your retainage payable. Keep the two directions in separate accounts or the numbers will lie to you.
To adapt this to your job: swap in your contract's rate, and check your state's cap before you agree to anything above 5 percent. Roughly half of the states that cap retainage set the limit at 5 percent, with the rest at 10 percent, and several have been tightening private-work caps toward 5. If the client pushes for more than your state allows, the clause is not enforceable, but you would rather know that before the first invoice than during a payment fight.
My opinion, for what it is worth: retainage is the piece of construction billing that ties up the most working capital and gets the least respect on the invoice. Five to ten percent of every payment, held for months, across every active job. Treat it like what it is, a loan you are forced to extend, and invoice it like one: named, dated, and totaled on every single pay application.
Where this breaks: contractors who treat retainage as a rounding detail and track it per spreadsheet tab, or not at all. A common failure mode is the release that never gets chased, because nobody wrote down the trigger. Put the release condition in the contract (substantial completion, final acceptance, or a named date), then close out punch-list items fast, because the release check and the punch list move together. Late release can trigger interest on federal jobs, where retained sums come due by the 30th day after final acceptance if the contract names no date. That clock only helps you if your paperwork proves when acceptance happened.
Frequently asked questions
How much retainage can a client withhold from a contractor invoice?
Typically 5 to 10 percent of each progress payment. The contract sets the rate, and many states cap it by law: roughly half of the states with caps set the limit at 5 percent and the rest at 10 percent. Always check your state's retention statute before agreeing to a rate.
When is retainage released to the contractor?
At substantial completion, final acceptance, or the deadline the contract names, whichever comes first in practice. Punch-list items are usually closed out before the money moves, and on federal jobs retained sums can come due by the 30th day after final acceptance if the contract sets no date.
Does retainage apply to subcontractors too?
Yes. Retainage flows down the chain: the owner withholds from the prime contractor, the prime withholds a similar percentage from its subcontractors, and it continues down the tiers. Subcontractors who finish their work early usually wait the longest for release, since release is tied to the whole project's completion.
Is retainage the same as retention?
Same concept, different name. Retainage is the US term; retention is used in the UK and much of the Commonwealth. On US contracts and ledgers you will almost always see it called retainage.
How should retainage appear on an invoice?
As its own line: work completed this period, minus retainage at the contract rate, equals the amount due. Also show total retainage held to date on the job and the remaining contract balance, so the running totals never have to be reconstructed from memory.
Related reading: The Contractor Progress Invoice, Explained Line by Line · Contractor Invoice Payment Terms: What to Actually Write · How to Invoice Change Orders Without Starting a Fight · How Long Does a Client Have to Pay a Contractor Invoice? · How Much Deposit Should a Contractor Ask For?