Why retentions matter more than they look
Five percent on a £2m contract is £100,000. Half comes back at practical completion. The other half comes back at the end of the defects period, usually twelve months later. Run six jobs like that and you have several hundred thousand pounds of your own money in other people's bank accounts at any moment, interest-free and unsecured.
Industry estimates put unrecovered retentions in the UK at hundreds of millions of pounds a year. It isn't mostly fraud or dispute. It's that the job finished, the team moved on, the date passed, and nobody raised the invoice.
Where your accounts hide them
Most bookkeeping treats a retention as an ordinary trade debtor: it sits in the aged debtors list beside last month's certified application as if it's due on Friday. It isn't. That makes the debtor book look bigger than it is and the cash position healthier than it is. Retentions should sit in their own control account, shown separately, with release dates, and excluded from the short-term cash forecast until they're actually due.
Build the ledger
One row per retention, per job, going back three years. Columns:
| Column | What goes in it |
|---|---|
| Job and customer | Contract reference and who holds the money |
| Retention % | From the contract. If you can't find it, calculate from the certificates |
| Deducted to date | Total withheld, cross-checked to payment certificates |
| First release date | Practical completion, from the PC certificate or the client's confirmation |
| Final release date | PC plus the defects period (6 or 12 months, from the contract) |
| Status | Released and received / due, not invoiced / invoiced, unpaid / not yet due |
| Owner | One named person responsible for chasing |
The first time you do this it takes an afternoon and usually finds something. One fit-out contractor we work with had £340,000 across nine jobs, no list, and two amounts eighteen months overdue that the client had simply never been asked for. £210,000 recovered in six months.
What to do with each status
- Due, not invoiced: raise the invoice this week. The release date passing doesn't trigger payment; your invoice does.
- Invoiced, unpaid over 30 days: a chase email with the certificate and the contract clause attached. Over 60 days, a letter. Over 90, a conversation about whether you tender for them again, and whether adjudication is worth it.
- Not yet due: diary the date. The month before, confirm with the client that nothing on the defects list is outstanding, because that's the usual excuse for delay.
- Disputed defects: get the list in writing, fix what's fair, and invoice the undisputed balance. A whole retention shouldn't be held for one snag.
When the contractor above you goes under
If the main contractor enters administration, retentions it holds become an unsecured claim and you'll see pennies in the pound, if anything. Two defences: keep retention exposure to any one customer under a limit you can survive, and watch the warning signs (certification lag creeping up, payment days stretching, staff leaving). Credit insurance can cover retentions on request; ask.
Ask for better terms on the next tender
- A retention bond from a surety instead of cash retention. The client is protected; the cash stays with you.
- A lower percentage: 3% rather than 5%, or 2.5% on larger contracts.
- A shorter defects period: six months rather than twelve.
- A cap on the total retention held.
- Retention released on sectional completion on long jobs, rather than at the end.
Not every client will agree. Some will, and nobody offers it unasked.
The monthly rhythm
The ledger is reviewed once a month, with the retentions tab on your management information. Anything that moved to "due" gets invoiced. Anything overdue gets chased. The owner reports total held, total overdue, and what's been recovered since last month. Half an hour, once it's built.
Sources
Questions people ask
Is a retention a debtor in my accounts?
It's a receivable, but not an ordinary trade debtor because it isn't yet due. Show it in a separate retentions control account with release dates, and keep it out of the aged debtors list and the short-term cash forecast.
Can a client hold my retention indefinitely?
No. The contract sets the release dates. If they've passed and the client won't pay, you can chase under the contract, and construction contracts carry a statutory right to adjudication, which is fast and relatively cheap.
What's a retention bond?
A guarantee from a surety that stands in place of cash retention. The client can call on it if you don't fix defects; otherwise the cash never leaves your business. It costs a small premium and is worth asking for on larger contracts.
How do I find release dates for old jobs?
Practical completion certificates, the client's handover letter, or the date of the final valuation. Add the defects period from the contract. If you can't find the paperwork, ask the client's QS; most will confirm.
About the author. Chris Neuman is the founder of Taxtful, accountants and advisers to UK construction companies turning over £1m to £15m. Taxtful is construction-only: every client, every template, every conversation. This article is general guidance, not advice on your circumstances; rates and rules change, so check the current position before acting.