Managing Retainage & Payment Terms

Retainage is one of the biggest cash flow challenges in precast manufacturing. With 5-10% of every project held back for months—sometimes over a year—you can quickly have hundreds of thousands or even millions tied up in unpaid work. Here's how to minimize retainage impact and negotiate better payment terms.

Understanding Retainage

Retainage (also called retention) is the percentage of payment withheld by general contractors or owners until project completion. It's meant to ensure quality work and project completion, but it creates significant cash flow pressure on subcontractors.

Typical Retainage Structures

Standard retainage: 10% - Industry default, though increasingly negotiable
Reduced retainage: 5% - Common for established relationships or competitive bids
Tapered retainage: 10% until 50% complete, then 5% or 0% thereafter
No retainage: Rare but possible with strong track record and bonding

The True Cost of Retainage

Most precast manufacturers underestimate retainage's impact. Consider this scenario:

Example: $10M Annual Revenue Company

Average project duration: 6 months
Average retainage: 8%
Average retainage release time: 90 days after completion

At any given time, you have:

$800,000 in current retainage (8% × $10M)
Plus another 3 months of completed work waiting for release: $200,000
Total tied up: $1,000,000

That's working capital you can't use to buy materials, pay employees, or bid new work.

If that $1M were freed up, you could:

Take on 20-30% more work without additional financing
Negotiate better material pricing through bulk purchases
Build cash reserves for equipment or growth investments
Reduce reliance on lines of credit (saving interest expense)

Strategies to Reduce Retainage

1. Negotiate Lower Rates Upfront

Don't accept 10% as gospel. Many contractors will reduce retainage if you ask—especially when bidding is competitive.

Negotiation Talking Points

"We're bonded and insured with a 10-year track record." - Demonstrate low risk
"We can offer a 2% discount for 5% retainage instead of 10%." - Trade margin for cash flow
"5% retainage is becoming industry standard for quality manufacturers." - Set expectations
"We maintain $XXX in bonding capacity specifically to reduce retainage needs." - Show financial strength

Timing matters: negotiate retainage during bidding, not after award. Once you've won the job, leverage evaporates.

2. Pursue Tapered Retainage

Even if you can't eliminate retainage, you can accelerate its release through tapered structures:

Example Tapered Structure

0-50% complete: 10% retainage
50-75% complete: 5% retainage
75-100% complete: 0% retainage

On a $500,000 project, this recovers $25,000-$37,500 earlier than standard retainage.

3. Accelerate Release Timelines

Standard contracts often have vague release terms like "30 days after substantial completion" or "when owner releases funds." Push for specific, objective triggers:

Upon delivery: For stock products delivered to site
Upon installation: When your scope is physically complete
After your final inspection: Not tied to overall project completion
30 days maximum: Hard deadline regardless of project status

4. Request Early Release for Stored Materials

For projects with long lead times, negotiate payment (minus retainage) for materials fabricated and stored on your yard.

Example:

$200,000 project with materials stored for 3 months before delivery:

Upon completion: Bill $140,000 for completed pieces
Upon delivery: Bill $40,000
Retainage held: $20,000
Upon release: Bill final $20,000

This accelerates cash flow by 60-90 days compared to billing only on delivery.

Optimizing Payment Terms

Retainage is only part of the equation. Your standard payment terms also significantly impact cash flow.

Understanding Net Payment Terms

Payment Term	What It Means	Impact
Net 15	Payment due 15 days after invoice	Best case; rare in construction
Net 30	Payment due 30 days after invoice	Industry standard; acceptable
Net 45-60	Payment due 45-60 days after invoice	Common in large GC contracts; strains cash
Pay when paid	You get paid after GC gets paid by owner	Terrible; avoid if possible
Pay if paid	You get paid only if GC gets paid	Worst case; you bear owner default risk

Strategies for Better Payment Terms

Negotiation Tactics

Offer early payment discounts: "2% discount for payment within 10 days" (worth it for cash flow)
Tie terms to project size: "Net 30 for projects under $100K, net 45 for larger projects"
Escalate payment delays: "1.5% monthly interest on invoices over 45 days"
Request progress payments: Bill at milestones instead of only at completion
Require deposits: 20-30% upfront, especially for custom work

Avoiding "Pay When Paid" Clauses

"Pay when paid" and especially "pay if paid" clauses transfer the GC's payment risk to you. This is unacceptable for most precast manufacturers.

Red Flag Contract Language

Watch for and reject these clauses:

"Subcontractor shall be paid within 30 days of Contractor receiving payment from Owner"
"Payment to Subcontractor is contingent upon Contractor's receipt of payment"
"Subcontractor acknowledges that payment is conditioned on Owner payment"

Counter-proposal: "Payment shall be made within 30 days of invoice date, regardless of owner payment status."

In many states, "pay if paid" clauses are legally unenforceable, but "pay when paid" may be valid. Know your state's laws and push back regardless.

Managing Retainage Effectively

Tracking Retainage

You need a system to track retainage by job, amount, aging, and release eligibility. Manual spreadsheets fail as volume grows.

A modern ERP system automatically tracks:

Retainage Dashboard

Real-time view of total retainage held, broken down by customer, project, and age

Release Eligibility Alerts

Automatic notifications when projects hit completion milestones and retainage becomes due

Aging Reports

Identify overdue retainage requiring collection follow-up

Job-Level Tracking

See exactly how much retainage is tied to each project and when it's contractually due

Proactive Retainage Collection

Don't wait for contractors to release retainage—they won't do it automatically. Implement a systematic collection process:

Retainage Collection Workflow

Day of completion: Send notice that your work is complete and retainage release timeline begins
15 days before due date: Send reminder with supporting documentation (photos, inspections, delivery receipts)
Due date: Submit final invoice for retainage amount
7 days past due: Phone call to AP contact and project manager
14 days past due: Formal letter from owner/CFO
30 days past due: Consider mechanics lien or legal action

Documentation is Critical

To accelerate retainage release and avoid disputes, maintain meticulous records:

Delivery receipts with dates and signatures
Quality inspection reports and certifications
Photographic evidence of completed work
Correspondence confirming acceptance
Lien waivers from your suppliers

The faster you can prove completion and quality, the faster you get paid.

Protecting Your Rights

Understanding Mechanics Liens

A mechanics lien is your most powerful tool for securing payment. It places a legal claim on the property for the value of your work, making it difficult for the owner to sell or refinance until you're paid.

Key Lien Requirements (vary by state)

Preliminary notice: Must be filed within 20-45 days of starting work (required in many states)
Timely filing: Lien must be filed within 60-120 days of completion
Accurate documentation: Dates, amounts, and legal descriptions must be correct
Enforcement deadline: Must initiate foreclosure action within 1-2 years or lien expires

Important: Mechanics lien laws vary significantly by state. Consult a construction attorney to understand your rights and deadlines.

When to Use Payment Bonds

On bonded projects (typically public works or large private projects), you can make claims against the contractor's payment bond instead of filing a lien.

Advantage: No property lien required; bonding company has financial incentive to resolve disputes

Disadvantage: Strict notice deadlines (often 90 days); claims process can be lengthy

Building Better Contractor Relationships

While protecting your financial interests is critical, the best long-term strategy is building relationships with contractors who pay fairly and promptly.

Vetting Contractors Before Bidding

Before investing time in a bid, research the contractor's payment reputation:

Check payment history: Talk to other subcontractors who've worked with them
Review credit reports: Use construction credit bureaus like Dun & Bradstreet
Verify bonding: Request proof of payment and performance bonds
Search court records: Look for patterns of payment disputes or lawsuits
Assess project financing: Is the project fully funded or speculative?

Red Flags

Unusually low general conditions or overhead (may indicate cash problems)
Pressure to start before contract is finalized
Requests to waive standard protections (liens, bonds, etc.)
Payment history of consistent late payments or disputes
Projects without confirmed financing

Rewarding Good Payment Behavior

Contractors who pay promptly and fairly should receive preferential treatment:

Prioritize their rush orders
Offer volume discounts or preferential pricing
Be flexible on scheduling or scope changes
Reduce retainage requirements for proven partners

Good contractors will value these benefits and reciprocate with repeat business.

Taking Action

Retainage and payment terms aren't just contract details—they're fundamental to your cash flow and financial health. A few percentage points or weeks can translate to hundreds of thousands of dollars of freed-up capital.

Optimize Your Payment Terms

IntraSync helps you track retainage, manage collections, and maintain documentation automatically.

Schedule a Demo

Start today: review your standard contract terms, identify improvements, and implement them on your next bid. Better payment terms mean better cash flow, less financial stress, and more freedom to grow your business.

Managing Retainage and Payment Terms with General Contractors