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Withholding payments from contractors

A common business practice, especially in the building industry, is for amounts to be withheld from contractors until the job is satisfactorily completed. These are known as retentions.

If you've contracted with another business and withheld a retention, you only need to complete a few short steps to record the retention in AccountRight before and after it's paid to the contractor.

Not quite what you're looking for? This page covers retentions from the perspective of the person who is withholding the payment from the contractor. For information on how to handle retentions from the contractor's perspective, see our page Receiving retention payments.Alternatively, if you'll be paying the contractor as an employee, such as a labour hire arrangement, see Add an employee.

We'll use the following example for these steps:

You're having new stables built, and the total cost of the job is $125,000 including tax. You'll pay this amount progressively over a five month period. The first payment will include $25,000 less 10% of the total cost ($12,500), which is the amount you're withholding until the job is completed satisfactorily.

But no matter your business' specifics, these steps and principles in recording a retention will work for you.

Before you begin

You'll first need to set up your company file with a liability account to hold the retention and a Retainer Withheld item to record it.

Need to record the purchase with the retention?

OK, so you've setup your company file and need to record the purchase with the retention. It's as easy as recording the purchase less the retention amount.

Ready to pay the retention?

Once the work is completed to your satisfaction, the contractor is entitled to receive the retainer withheld.

Before you record the final bill, you might want to determine the amount that has been withheld. Run the Purchases (Item Summary) report (Reports > Index to Reports > Purchases > Item > Purchases (Item Summary)) and set the filter to the Retainer Withheld item only. Set the Purchase Status to All Bills and select the relevant date range.

Once you determine the amount withheld you're ready to record the final bill.