You've finished the job, invoiced it, and been paid, well, most of it. There's a slice held back that you won't see for months, sometimes a year or more. That's a retention, and for a lot of building contractors it's one of the most frustrating features of the whole trade: your money, your profit, sitting in someone else's bank account.
Retentions are a fact of life in construction, but the damage they do to your cash flow, and your profit, is largely within your control. Here's how they work and how to stop them hurting you.
What a retention actually is
A retention is a percentage of the contract value that your customer holds back as security that you'll return to put right any defects. A common arrangement is around 5%, often released in two halves: the first at practical completion, and the second at the end of the defects liability period, which can be six or twelve months later, sometimes longer.
The logic makes sense from the customer's side. The problem is what it does to yours.
Why retentions hurt so much
There are two separate problems, and both bite.
1. The cash flow drain
The money held back is often a big chunk of the profit on the job, the very margin you were relying on. Hold 5% across a year's worth of work and the sums add up fast. It's cash you've earned, that you can't use to pay wages, suppliers or yourself, locked away for months.
2. The profit leak
This is the one that really stings. Retentions are easy to forget. The job's finished, everyone's moved on, and the release date passes without anyone invoicing for it. Money you earned simply never gets collected, and an uncollected retention is pure lost profit.
How it adds up
A simple illustration of what 5% ties up:
| Annual work subject to retention | £400,000 |
| Retention held at 5% | £20,000 |
| Locked away at any one time (rolling) | often £15k–£30k+ |
For a growing firm, that's easily tens of thousands of pounds of your own money sitting out of reach, and the first casualty when cash gets tight.
How to take control of your retentions
- Record every retention as it's createdThe moment you raise an application or invoice with a retention, log it: the amount, the job, and both release dates. A simple retentions ledger means nothing slips through unnoticed.
- Diarise the release dates, and actually invoice themPut practical completion and end-of-defects dates in the calendar, then bill and chase them when they fall due. This one habit alone stops the profit leak.
- Build retentions into your cash flow forecastTreat held-back money as arriving on its real release date, not when the job finishes, so you're never counting on cash you can't yet touch. Here's how cash flow forecasting works →
- Negotiate the terms up frontRetention terms are negotiable more often than contractors assume, a lower percentage, a cap, a shorter defects period, or a retention bond instead of cash held back. It's far easier to agree before you start than to claw back after.
- Account for them properlyRetentions are still money owed to you and belong in your accounts as debtors, not quietly ignored until they turn up (or don't). Getting this right keeps your reporting honest and your year-end clean.
Get a system around your retentions and two things happen: you stop losing money you've already earned, and you get a far clearer picture of the cash actually heading your way. For most contractors, tightening this up is one of the quickest wins there is.
Losing track of what you're owed?
Book a free, no-obligation discovery call. We help building contractors keep on top of retentions, debtors and cash flow, so you collect every pound you've earned.
Schedule a CallThis article is general guidance for building contractors, not advice for your specific situation. Always review your own circumstances with your accountant before acting.
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