Retainage

Retainage (or retention) is the percentage of each progress payment — commonly 5% or 10% — that the owner withholds from the general contractor, and the GC in turn withholds from subcontractors, until the work is complete and accepted. Its purpose is leverage: withheld money motivates parties to finish punch lists, correct defects, and clear liens. Its side effect is that everyone in the chain finances a slice of the project until the end, and the lowest tiers wait longest for money they earned earliest.

For credit analysis of contractor customers, retainage is a structural drag on liquidity that plain financial statements can obscure. A subcontractor doing $20M of annual work at 10% retainage has up to $2M earned but unpaid at any time, often for months past substantial completion — receivables that are real but slow by design. When spreading contractor financials, distinguish retainage receivables from ordinary trade receivables and age them realistically; retainage on a disputed or troubled project can be tied up for a year or more. Many states cap retainage on public work (5% is common) and some regulate private-project retainage, but practice varies widely.

Suppliers selling materials to subcontractors feel retainage indirectly: your customer's cash inflow is 90-95 cents per earned dollar while your invoice is due at 100 cents. This mismatch is a legitimate driver of construction's slow payment norms and is worth pricing into terms rather than treating purely as delinquency. Note also that lien and bond deadlines usually run from your last furnishing, not from when retainage is released — do not let a customer's "we get paid our retention in the spring" narrative carry your claim past a filing deadline.