What is retainage receivable?
Retainage Receivable is money that is owed to you, while. Retainage Payable is money that you owe to someone else.
What is retention money in the context of construction contracts and how must it be treated?
Retentions are used in the construction industry as a means to secure obligations under a construction contract and ensure defects are remediated. Retentions represent an amount deducted and withheld from each progress payment made to a contractor or subcontractor.
What is retention money in construction contracts?
Retention Money in Construction is described as the sum of money held by the client as a safeguard for any defects or non-conforming of construction work by the contractor. Retention Money used in construction is subjected to limit as per the stated percentage in the contract which is known as ‘Limit of Retention’.
How do you record retention receivables?
Applying Accounts Receivable Retention When an invoice with retention is first entered, the net invoice amount (invoice balance minus retention) is debited to the Accounts Receivable account, and the retention amount is debited to the Retention Receivable account.
How long can a company hold your retention?
This is known as the first moiety of retention. The second moiety of retention is paid once the defects liability period has ended. This period can last anywhere from six months to over a year.
How do you release retention money?
Usually, retention monies are released in 2 stages of the project.
- Release of the first half of the Retention Monies. at the time of issuing the Completion Certificate, The first half of the Retention Monies will be certified and released.
- Release of the second half of the Retention Monies.
Why do construction companies hold retention?
Why is retainage withheld? Retainage is often withheld throughout a job to protect the owner and/or general contractor against non-compliance, non-performance, and other project risks. The withholding practice is so common, in fact, calculating withholdings is built right into most standard payment application forms.
How does construction retention work?
Retention is essentially money promised that is held back by the client to ensure themselves against contractor failure. Usually, retention is set at 3% or 5% of the total work value. That money is deducted from payments made to the contractor, who then deducts it from payments made to any subcontractors.
How do you record retention money in construction?
The retention money shall be deducted on agreed percentage (as mentioned in contact/agreement) from the amount payable to contractor or on each instalments of progressive billings. A contractor may also deduct from payment to sub-contractors on the same basis.
How is retention taken?
How much is held in retention? Usually up to five percent of the total contract value is held by the head contractor until the subcontractor has completed the job and fixed any defective work.