Construction Retainage: Money You Earned That the Owner Has Not Paid

Answer first: Construction retainage is money you already earned that the owner is holding back. The check is smaller than the work you finished. The amount they held is still yours. It belongs on the books as money the company is owed, not as money you lost.

You see it every month. The crew finished the work. You send the pay application. The owner pays most of it and keeps 5 or 10 percent until the job hits a milestone written in the contract. That milestone is often substantial completion or final completion. Payroll and suppliers do not wait. If you cross the hold off like you never earned it, the job looks worse than it is. If you spend it like cash in the bank, the account comes up short.

Three names for the money they held

Label one job yourself. The contract is $1,000,000. You have earned $400,000. Retainage is 10 percent, so the owner holds $40,000 and pays $360,000 now. The $360,000 is cash. The $40,000 needs a name. Accountants use three names, and they come from GAAP. GAAP stands for Generally Accepted Accounting Principles. It is the shared rulebook for company books, so a balance sheet means the same thing from one company to the next. Your CPA keeps the books inside that rulebook. The three names tell you what the $40,000 is, so you can read your own numbers and ask a sharper question.

Receivable: a bill they already owe you

A receivable is a bill the owner already owes. The work this money covers is done, and the only thing left is the pay date. Nothing else has to happen. You are waiting on the calendar. Retainage becomes a receivable when the contract says the owner has to release it and you are only waiting to be paid. On a lot of jobs that moment is at the end, after substantial completion or final completion.

Contract asset: earned, but they do not have to pay yet

A contract asset is money you earned that the owner does not have to pay yet. Something besides the calendar is still in the way. You still have to finish the building, they still have to accept the work, or you have not hit the milestone in the contract. The $40,000 on a job that is only partway done is usually a contract asset. It is still an asset. An asset is something the company owns or is owed. It is not cash, and it is not a normal bill yet, because the owner can point at the contract and wait for the milestone.

Contract liability: they paid you before you finished

A contract liability is money the owner paid you before you finished the work. This is the opposite of retainage. They paid early, so you still owe them the work. Retainage is them holding your money, not them paying you ahead. The hold sits in this bucket only when, on that whole contract, they have already paid more than you have earned. If that is true, the retainage is shown with that paid-ahead balance. It is not extra cash stacked on top.

A receivable and a contract asset are both assets. A contract liability is work you still owe. The name on the $40,000 changes with the contract. The dollars do not disappear because the check was short.

On April 1, 2025, the Financial Accounting Standards Board published a staff paper that walks through this same split for construction contractors. FASB is the group that writes the GAAP rules. The paper covers Topic 606, the chapter on when you count revenue. It does not change the rules. It says retainage is a receivable when only time is left before payment, and a contract asset when some other condition is still open. If the owner is paid ahead on the contract, the hold is presented with the contract liability. You can read it in the staff announcement of the retainage paper. What you just did with the $40,000 is the idea in that paper. This is education for the job, not an audit opinion or tax advice. Your CPA applies the name to each contract.

The pay application is where you show the hold as a number. AIA instructions for G702-1992 walk through the application for payment: work completed, retainage, what you were already paid, and what you are asking for this period. The line-by-line sheet behind it is the continuation sheet. BalanceBuild Pro makes G702/G703-style pencil copies. Those files are not official AIA forms. If the owner requires the official form, use that form and keep the same numbers behind it.

To see how the continuation sheet is built from the schedule, read the schedule of values for G703 pay applications. To see the draft built from Gantt percent complete, read how to build a G702/G703 pay app from the schedule.

What a 10 percent hold does to one period

Example only. This period has no earlier pay apps. Put the $40,000 in the name you learned above.

Example: $400,000 earned on a $1,000,000 contract, 10 percent retainage

Line	Amount	Where it sits
Work completed and stored to date	$400,000	Earned on this job
Retainage withheld, 10 percent	$40,000	Still owed to you
Cash the owner pays now	$360,000	In the bank

If this job still has a milestone before they release the hold, the $40,000 is a contract asset. If that milestone is done and you are only waiting on the pay date, it is a receivable. Either way, it is not money you lost, and it is not cash you can spend today.

Step 1: Read the retainage rate and when it gets released

1. Write down the percent, and whether it applies to every line or only to some.
2. Name the milestone that releases it: substantial completion, final completion, a lien-waiver package, or another line in your contract.
3. Note who signs the pay application. The hold comes from the contract, not from a guess at month end.

Follow the contract you signed. This is not legal advice.

Step 2: Apply retainage to work you have earned

1. Start from work completed and stored to date on the schedule of values.
2. Multiply that earned amount by the retainage rate on this contract.
3. Leave unapproved extras out of the earned column. A verbal extra is not retainage. It is a change that has not been approved yet.

A side workbook with a different earned total will not match the pay app the architect already has.

Step 3: Put the held amount on the books, separate from cash

1. Deposit the check as cash.
2. Keep the retainage on the books. Call it a receivable if only the pay date is left. Call it a contract asset if a milestone is still open.
3. If the owner is paid ahead on the whole contract, the hold sits with the contract liability. Ask your CPA to confirm the name. Do not erase the balance because the check was short.

You did the work. The FASB paper is the backup for keeping those dollars on the books. The name changes with the contract. The amount stays.

Step 4: Keep the pay app and the schedule on one number

1. Update percent complete on the Gantt in the same period the work happened.
2. Bill that percent through the schedule of values, then apply retainage.
3. If weather or a delay stopped the work, the billed percent should show it. The retainage line should not hide a fight about how far along the job is.

Owners push back when the pay app and the field story disagree. One earned number, then the hold, is easier to explain than two.

Step 5: Carry the balance until the contract lets them release it

1. After each pay app, write down retainage still held, not only the cash you received.
2. When the release milestone is met, ask for that balance as its own amount due.
3. Tie the request to the pay apps that created the hold, so closeout is a sum you can show.

At release, the asset becomes cash. Until then it is money the company is owed.

Where BalanceBuild Pro fits

BalanceBuild Pro stores the contract retainage percent on the project. On Builder Pro, Financials drafts a G702/G703-style pay application from Gantt percent complete and the schedule of values, including retainage and Stored materials. QuickBooks stays the invoice. The pencil copy is not a licensed AIA Contract Document.

Public pricing: Base is $49 a month (1 active project, 2 seats, AI voice logs, Gantt, 12-month price lock). Builder Pro is $199 a month (up to 6 projects, 6 seats, financials). The 30-day trial does not require a credit card. Retainage on the pay application is part of financials, so it sits on Builder Pro. Base is the logs and the schedule.

The software does not replace your CPA, the architect's signature, or the release language in the contract. It keeps the earned amount, the hold, and the schedule on one job so you can point at the number.

FAQ

What is retainage in construction?

Retainage is a percent of money you already earned that the owner holds until a milestone in the contract, often substantial completion or final completion. On a 10 percent hold, $400,000 earned means the owner pays $360,000 now and keeps $40,000 until that milestone is met.

Is retainage revenue you already earned?

Yes, when the work, and any stored materials the contract lets you bill, is earned. The cash shows up later. The held amount is still revenue you earned. It stays on the books until the owner releases it. It is not money you lost.

Is retainage a receivable or a contract asset?

Use the dollars they held and pick the name from the contract. A receivable is a bill they already owe you. Use it when the work for that money is done and the only thing left is the pay date. A contract asset is money you earned that they do not have to pay yet, because a milestone is still open, such as finishing the work or substantial completion. Both are assets: something the company owns or is owed. While the job is still going, the hold is usually a contract asset. The Financial Accounting Standards Board staff paper of April 1, 2025, on Topic 606, describes that same split. Your CPA applies the name to each contract. This is education, not audit advice.

What is a contract liability?

A contract liability is money the owner paid you before you finished the work. You still owe them that work. Retainage is the opposite: they are holding money you already earned. The hold is shown with the contract liability only when, on that whole contract, they have already paid more than you have earned.

How does retainage show up on a pay application?

The pay application lists work completed and stored, subtracts retainage, then subtracts what you were already paid. What you ask for this period is the net. The held amount should still show as retainage to date, so the next period does not forget it.

How does BalanceBuild Pro handle retainage?

The project stores the contract retainage percent. On Builder Pro, Financials drafts a G702/G703-style pay application from Gantt percent complete and the schedule of values, including retainage. Those PDFs are pencil copies, not licensed AIA Contract Documents. Base at $49 a month covers logs and the Gantt. Builder Pro at $199 a month is the plan that includes financials.