Retainage — sometimes called retention — is a percentage a customer withholds from each payment until the whole job is complete and accepted. Five or ten percent is typical in construction.
It is money you have earned and cannot use.
Why it is dangerous rather than merely annoying
Retainage accumulates quietly across every job at once, and its timing is the worst possible shape for a small contractor.
You have already paid for the materials and the labour on the retained portion. The margin on the job — often close to the entire margin — is sitting in the customer's account, and it is released last, after the punch list, after the inspection, after whatever the general contractor is waiting on.
A busy year can leave a contractor profitable on paper, short of cash, and unable to explain why. The explanation is usually a retainage balance larger than a month's payroll.
What to do about it
Know the total. Retainage held across all jobs is one number and most contractors do not have it to hand. It belongs in every cash conversation.
Price for it. If ten percent is held for six months, that is a financing cost you are carrying for the customer, and it belongs in the bid rather than in the margin.
Chase it as a job. Retainage release is nobody's priority once the work is done. It comes back to businesses that ask, on a schedule, the same way any other receivable does.
Do not plan on it. Excluded from cash runway it is conservative. Included, it is fiction, because the release date is not yours to choose.
What it is not
Not a dispute, and not a sign of dissatisfaction. It is a contract term applied to everybody, which is exactly why it goes unchallenged and unmanaged.