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January 20th, 2023
Author: Simon Schaffer

Solutions to manage all aspects Contract management

However, if you set clear priorities, you can focus your team on the collection of retention money without affecting the rest of your business. But, watch out because Contractors are finding all sorts of ways to avoiding paying retentions within a reasonable period of time. https://www.good-name.org/how-accounting-services-can-help-real-estate-companies-optimize-their-finances/ In particular they are setting ridiculously long periods before retention becomes due for release. If you have completed your work in a satisfactory way and corrected any defects that might have occurred, then you should be paid the retention money that is rightfully yours.

But, as with any other debtor, you need to consider the possibility of it turning out to be irrecoverable and as soon as there is any sign of this happening, you need to make a provision against the retention debt. As every single element of the works is being inspected for defects, this will, by necessity, include the work undertaken by a number of different construction bookkeeping Specialist Sub-Contractors. Any delay in remedying defects by any of the Specialist Sub-Contractors could delay the issue of the Certificate of Making Good Defects and thereby the release of your retention money. Most of the time, you are looking at the jobs you are working on at the moment, and making sure you maintain cash-flow in the here and now.

Payapps: Managing retention in construction and how to get it back

30-day payment is the default payment term used in the UK for payment of goods and services. By moving to a net 30 system, a subcontractor’s capital working cycle is shortened, and they are better able to grow their company. Net 30 arrangements also provide a way to gain insight into a contractor’s payment track record, allowing subcontractors to better choose jobs where their employer is one who is known to pay on time and in full. Typically this may be for a 12-month period between a Certificate of Completion being given and the issue of a Maintenance Certificate. Usually, unless remedial work is urgent, the works are inspected at the end of the defects liability period and a schedule of the defects is produced. Various terms are used in construction contracts to describe the completion of sub-contracted works.

Create retention terms, allowing you to calculate retention deductions for every invoice based on your terms. Raise applications, certify applications and see any outstanding balances and retentions all in one place. After viewing the video we can provide you with a fully interactive live demonstration where you can see the software in detail and ask any questions.

Contractor Retention

You know that it’s hard enough collecting the bulk of what you are owed, and that’s why your resources are concentrated on that as opposed to the 5%’s and 2.5%’s of retention. And the long periods of time between contracts coming to and end and retention money becoming due often leads to collecting retention being low on your list of priorities. Do you get back all the retention payments that are deducted on the contracts you undertake? Save the half release at Practical Completion if that right is in the contract, you do not get the retention back until you have “entirely finished” the work. If you are a subcontractor and it is the end of your defects period that you have agreed for your work, it is time to claim.

• It depends what it says in the contract, but typically any remaining retention is released on certification of making good defects at the end of the defects liability period.
• It’s worth noting again that construction accounting still follows the GAAP.
• This may sound very formal but, hey, it’s your money he is holding onto.
• Retentions are a percentage of a construction contract, often 5%, which are held back and not paid until a later date.
• Final report and recommendations from short life working group on cash retention under construction contracts.

Perhaps one of the single most important elements within construction accounting, when WIPs are compiled correctly, they can give construction companies the foresight that they’re likely to go over budget in plenty of time to avoid this. A Work in Progress report forms part of a construction company’s balance sheet. Contracts utilising the Percentage of Completion accounting methodology require this report, and it’s calculated for each accounting period. This is a straightforward metric to calculate in most businesses, but you guessed it, it’s not quite as easy for construction businesses.

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