A Tradie's Guide to Managing Retention Money and Protecting Cash Flow
5 November 2026 · 6 min read · By Heaney Accounting
What is Retention Money?
Retention money is a portion of your contract payment held by the client or head contractor until the project reaches practical completion or the end of a defects liability period. While it's meant to ensure quality work, it effectively acts as a forced interest-free loan from your business to your client, which can cripple your cash flow if not managed correctly.
Pro Tip: Never assume your final payment will hit your bank on the date you expect. Always factor the withheld retention amount into your initial job budget to ensure you can cover your immediate overheads.
Best Practices for Tracking Retentions
- Record the specific retention percentage and release date in your accounting software for every job.
- Keep a dedicated 'Retention Receivables' folder to track exactly which jobs have money outstanding.
- Send a formal request for the release of retention funds as soon as the defect period expires.
- Reconcile your bank account monthly to ensure released retentions have actually landed.
Protecting Your Business Liquidity
When you have several jobs on the go, the total amount of money tied up in retentions can become significant. If this starts to exceed your working capital buffer, your business becomes vulnerable. Review your contract terms early; sometimes you can negotiate a bank guarantee in place of cash retentions, which frees up your working capital for daily operations.
Try the related tools
Found this useful?
Get each new guide by email as it's published. No spam, no lock-in.