Retainage
Retainage is a portion of each progress payment, often around 5 to 10 percent, that a client withholds until a project is complete or accepted.
The contractor has earned that money but cannot collect it yet. It belongs on the books as retainage receivable, separate from ordinary accounts receivable.
Example
On a $100,000 contract with 10 percent retainage, each $20,000 progress bill pays out $18,000 and holds back $2,000. After five bills, $10,000 is earned but still held.
Common mistake
Leaving retainage inside regular AR. It makes the aging report look worse than reality and hides cash that will not arrive until closeout.
How to use it
Track retainage per job, note the release conditions in the contract, and bill for release as soon as they are met.