Retention Money – don’t let clients steal your cream!

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What is retention money, and how does it work?


Retention money, common in the building and construction industry, is money that is withheld from a payment and not paid in full until a job is finalised.


I like to refer to it as a building company’s cream.


A lot of small sub-contractors, or even medium-sized sub-contractors and businesses do not have a good understanding of how retentions work.


The basis of retention money is essentially a guarantee of sorts; it guarantees that your workmanship is ‘up to scratch’. If it is not, and your business does not rectify the fault, the retention money is used to get someone in who will. This cost will then be deducted from your retention monies, which illustrates the purpose of it being ‘retained’ - so the Building Company (the head contractor) will not be out of pocket to rectify things if necessary.


Otherwise, assuming there are no issues, you’ll get your retention money in full.


The important bit to remember is that sub-contractors usually have to ask for it. Most small businesses who don’t understand what retentions are, often do not ask. If you don’t ask, you don’t get. When not claimed by the sub-contractor, it becomes the ‘cream on top of the cake’ that the Building Company (the head contractor) made out of the deal.


How much is the retention amount?


The usual amount of retention is 10% of the contract amount, with the total retention monies typically being due 12 months after finalisation of the work.


On occasion, this may be broken down further, with 5% paid out after 6 months, and the remaining 5% 6 months after that.


Once a retention amount is agreed upon, an agreement can be made in writing or verbally - as a sub-contractor, you need to understand what the retention is, why it is charged, and when you will get this money that is rightly yours.


Helpful Tips:


  • You have every right to request a copy of the invoice for any work that is being deducted from your retention monies, and you should do so.
  • Take photos of the worksite prior to commencing work, immediately after the work is completed, and again after clean-up is done. Experience with a painting client recently has shown that those few seconds spent taking the photo can save a lot of heartache later, when ‘rort’ claims are made.

Entering it in AccountRight

from the perspective of the sub-contractor from whom the retention payment is being withheld


My approach differs slightly from the MYOB help page. I would recommend that you have a read through of the help page* as well, to see which method suits you best. Both ways are acceptable; it is more a matter of choice as to what serves your purpose and what you prefer on tracking. I have commented on why I use my method and the choice is then left to you.


*MYOB help: Receiving retention payments


The method requires the following accounts and cards to be set up:


  • An asset or liability clearing account (it doesn’t matter which as it should end up back at a nil balance). The purpose of using a clearing account and not an income account or any other accounts for these entries is so that the clearing account can be reconciled to a nil balance on a regular basis.
  • Client’s ‘retention’ card – create a card labelled something along the lines of ‘Z-Client Retention’

1. Invoice the client for the total amount of work, not taking into account at this stage any retention monies.

This is because when invoicing on a progress payment basis, you will find that some builders will only take the retention monies out of the final progress payment, where others will take it from each progress payment. So for my client’s cash flow situation, I usually invoice for all that is due and hope for the best.


The invoice can be entered as either of the below examples:


Example 1



Retention 1.png


Example 2


Retention 2.png


2. Once the client makes the payment, taking out 10% for retention, record the Receive Payment transaction for the amount received and apply that to the invoice (i.e. in this case, $29,700.00 is received to the bank account).


3. Create a negative sale to the client for the amount of retention (i.e. $3,300.00), coded GST and allocated to the Asset/Liability clearing account.


Retention 3.png


4. Apply this negative invoice/credit note to the remainder of the invoice, which then clears out the debt.


Retention 4.png


5. Create another invoice for the client’s ‘retention’ card. This invoice is coded GST and allocated to the same clearing account that the negative invoice was allocated to.


Retention 5.png



Tip: For the client’s retention card, I found putting a ‘Z-‘ in front is sometimes better as it puts all retentions at the end of your accounts receivable report.


I prefer keeping my retention money due in my accounts receivable. This is because a lot of untrained/novice bookkeepers do not even look at a balance sheet – if they are ‘in your face’ on the accounts receivable report, if one bookkeeper leaves and another comes, at least it’s there on the accounts receivable report, for the business owner and the new bookkeeper to take note of.


Sample retention statement


Each month, (or bi/tri monthly depending on whether the balance has changed, or due dates are approaching), I send a retention statement to the client with the following letter.





ABC Building Company                                                                                        XYZ Electrical Contractors

1 Smart Street,                                                                                                         5 John Street,

Newtown WA 6151                                                                                 Oldtown WA 6024


                                                                                                                        31st January 2016


Dear Sir/Madam,


Attached is your recent statement of your retention account.


The amount owing is represented by the following:


Contract No.  Job Name                       Invoice No.      Amount             Due date


22105/66           5 West Street                        3095            $2,200.00           Dec 2016


22561/99           224 Beaufort Street            3371            $3,300.00           Feb 2017


                                             Total Retention Monies Due              $5,500.00


Please advise the writer if you disagree with the above amounts owing or the due dates.


If payment has been made after the statement date this will not be reflected on the amount owing showing on the statement.


Yours faithfully,


Julie Carter

XYZ Electrical Contractors       




Note: If you run on an accruals basis…


If you account for GST on an accruals basis, you’ll code the negative invoice/credit note (for $3,300.00 inclusive) as GST and code your retention invoice as Not Reportable (NR) for $3,000.00 (at this stage).


Once payment is received for your retention, you would need to process another invoice to the Retention-client’s account.


This invoice would be coded to the clearing account as negative for the retention amount ($3,000.00) coded Not Reportable and positive to the clearing account for the retention amount coded GST ($3,300 inclusive) coved GST - the end result of the invoice would be $300.00, making the total of $3,300.00 due.


This ensures that GST is paid once you receive payment of the retention amount, as per the ATO guidelines contained in Division 156.




  1. Terms of contracts providing for retention amounts are common in building and construction contracts. Under the usual terms of a building and construction contract that provide for retention amounts, the recipient of the supply withholds the retention amount from the total amount payable. The retention amount provides the recipient with a means to ensure that the supplier will satisfactorily perform its obligations under the contract.
  2. If you make a taxable supply or a creditable acquisition that is made for a period or on a progressive basis, and if the consideration that is to be provided on a progressive or periodic basis includes a retention amount, Division 156 will apply. The GST or input tax credits in respect of the retention amount will be attributed to the tax period in which it is paid.
  3. If Division 156 does not apply to a written contract including a retention amount, then the basic attribution rules apply. However, the Commissioner has made a determination under section 29-25 in relation to such supplies and acquisitions.17



I hope the above has helped with providing a better understanding as to what retentions are about and (hopefully) ensuring the ‘cream’ stays with the sub-contractor who’s actually earned it.


Julie Carter AIPA, BBus(Acctg),
MYOB Professional Partner, Registered BAS Service Provider
Associate Member of Institute of Public Accountants
Member Association of Accounting Technicians
ph: 0417 927 654 email:
Accurate Books Always (Servicing from Leederville to Pinjarra, Fremantle to Armadale WA)


1 Comment
Contributing User
7 Posts
Contributing User


Our clients insist that the retention amount is taken out of the invoice, so I have to decrease my invoices 5 to 10% depending on the cotract.  They want the invoice to match the payment claim form.

How would I enter this into MYOB?

I want to be able to see retentions that are outstanding on each job for each client.

Can you assist?

Thanking you in advance.