Understanding Retainage
You can create a voucher withholding a portion of the gross payment as retainage. Retaining is also called a hold back. Retainage is the percentage of a committed amount that is held until a specified date. For example, you pay the retained amount after the completion of the contract, service, or receipt of all items on an order. If you create a voucher for 100 with retainage of 10 percent, the actual payment will be 90, with 10 held as retainage. You release retainage by entering a payment voucher for the amount that you want to release. Note that you can release retainage and create a voucher at the same time.
For example, you issue a purchase order for 1000 against a billable job account. You receive an invoice from the vendor which may or may not indicate the retainage amount. You create a voucher for 1000 with retainage of 10 percent. Thus, the actual payment will be 900, with 100 held as retainage. The 1000 creates a debit to the billable job account per the purchase order with a 900 credit to the A/P trade account. The retainage of 100 creates a credit to the A/P retainage account. This fully relieves the 1000 commitment.
When appropriate, you release retainage either with or without a subsequent invoice from the vendor. In either event, the initiation of retention release is a manual process. You release retainage by entering a payment voucher for the amount that you want to release. In this example, the payment of 100 creates a credit to the A/P trade account and also creates a 100 debit to the A/P retainage account.
This diagram illustrates the T account changes for a 1000 line with 10 percent retainage:
You can create a voucher with retainage that is applied to the entire voucher, or you can apply retainage by line item of the voucher.
Use the tax with retainage processing option to defer tax on retainage. If you activate the processing option for tax with retainage and if you use a tax type of C or V, the system calculates amounts differently. It subtracts retainage from the original taxable amount and recalculates new amounts.
A partial release of retainage indicates that there is still an unpaid amount of retainage. A final release of retainage indicates that no retainage remains to be paid. You can release retainage for individual vouchers or for groups of vouchers. You can create a voucher with retainage to match a receipt or purchase order and release a retainage at the same time.