Recording retention you hold back from subcontractors
How a main contractor records retention kept back from a subcontractor's payments as money still owed, sees what is held, and records the release.
By Achekam · · 4 min read · For Construction businesses in South Africa, Nigeria, Kenya
Main contractors hold back part of every payment to their subcontractors, just as their clients hold back part of every payment to them. The retention is security: if the subcontractor's work turns out to be defective, or the subcontractor disappears before the snags are fixed, the money held back pays for putting it right.
The trouble is that retention held from subcontractors is often invisible in the books. Bills are recorded net, the retained part is forgotten, and two years later a subcontractor phones asking for a release nobody can calculate. This article shows how to record retention in Achekam so that what you owe each subcontractor is always clear.
Retention is money you still owe, not a discount
The first rule: retention is a debt, not a saving. The subcontractor did the work, invoiced for it, and you agreed to pay the full amount, part now and part later. Until you release it, the retention is a liability on your balance sheet.
If you record only the net amount you pay, the liability disappears, your costs are understated and your profit on the job looks better than it is. When the release finally comes, it lands as a cost in a later month, on a job that may already be closed. AccountingTools' note on retainage explains retention as the part of a contract price withheld until a project is completed, to make sure the work meets the agreed standard.
Entering the subcontractor's full invoice as a bill
Record the subcontractor's invoice at its full value. Achekam keeps one supplier list, with duplicate checks by name or VAT number, so each subcontractor has one record across all your jobs.
There are two routes in:
- Against a subcontract order. If you raised a purchase order, record the invoice against it. It is matched with what was ordered and what was done, and once matched it posts as expense, input VAT and trade payables. The subcontractor's invoice number stops it being posted twice. Approving a subcontractor's progress claim covers this route in detail.
- As a supplier bill. Supplier bills are recorded line by line with VAT. A bill without a purchase order waits for approval before it posts.
Either way, the full invoice value goes into trade payables. How VAT applies to the retained part is a question for your accountant; settle it once and apply it to every subcontractor.
Paying part of the bill and leaving the retention open
A bill can be paid in full or in parts, from a chosen bank account. Pay the claim less retention. The bill stays part-paid, and the amount still open on it is the retention you hold.
Paying a supplier in Achekam only records the payment. No bank payment file is produced for suppliers, so the transfer itself is made in your online banking, for the same amount you recorded.
A worked example in words: a plumbing subcontractor's monthly claim is approved at its full value. You record the bill in full, then record a payment of the claim less the contract's retention percentage, and make that same transfer in the bank. The bill shows the retention still open. Next month's claim is a new bill with its own retention left open, and so on until the job ends.
Seeing what is held for each subcontractor in the ledger
The general ledger lists every posted line, and the trial balance shows each account for all time, for a period or at a date. With the method above, the open balances on each subcontractor's bills add up to the retention you hold from them.
Many contractors go a step further and show retention payable as its own account on the balance sheet, separate from ordinary trade creditors. Accounts can be added to the chart, and your accountant can move the retained amounts into that account with a manual journal at each month end. Achekam refuses an unbalanced journal or one dated in a closed month, and a posted journal is corrected only by a reversal, so the movements are traceable.
Keep a retention register as well, per job and per subcontractor:
| Subcontractor | Job | Bill numbers | Retention held to date | Release due | Released | Balance |
|---|---|---|---|---|---|---|
| Plumbing | Job name | from the bills | running total | per subcontract | date and amount | what is still held |
Releasing it after completion and the defects period
Most subcontracts release retention in stages, typically part at completion of the subcontract works and the rest when the defects period ends. Before each release, check:
- the stage has really been reached, with the certificate or the defects list signed off;
- the subcontractor's defects have been put right;
- nothing is owed back to you, such as contra charges for damage or materials;
- your own client has released, or will release, the matching retention, if the subcontract ties the two together.
Recording the release payment you make in your own banking
When a release is due, pay the open balances on the subcontractor's bills, oldest first, from the chosen bank account, and make the matching transfer in your banking. When the bank statement comes in, match the payment. Bank lines are matched by suggestion and a person accepts each match. Once the last bill is fully paid, the subcontractor's retention for that job is closed, and the register should show a nil balance.
This month
Pick your largest active subcontract, list every bill and every payment since it started, and work out the retention held. If it does not match the open balances in the books, fix that first. Then set up the register for every other subcontract. Deliveries of materials to site follow a different path again, explained in recording part deliveries to site, and the other side of retention, the money your client holds from you, is covered in invoicing so retention is not chased as overdue.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
