Adding retentions to a payment plan: a guide for construction

Summary

• A retention is a portion of a contract sum, commonly around 5% in UK construction, that the customer withholds and releases after an agreed period (usually 12 months).
• Given they are collected outside of the standard chase cycle, retentions often get forgotten or ignored by the customer.
• You can use standard payment plan functionality to ensure you chase and collect it: schedule the retention as its own instalment, dated to the contractual release date.
• The main balance then chases on normal terms and the retention chases on its own timeline when it falls due.

What a retention is

A retention is a portion of a contract sum, commonly around 5% though it varies by contract, that the customer withholds to guarantee the work. It’s released in stages, typically once any defects are made good after a defined period. It’s standard practice in construction contracts.

The problem for the business owed the money is that a retention is a delayed, easy-to-forget receivable with its own timeline, separate from the main invoice.

Why retention payments fall through the cracks

There are several reasons retentions are harder to collect:

• It’s hard to track a retention payment in Xero so you have them all sitting in a spreadsheet.
• You have to manually add due dates and set yourself a reminder to follow up and chase it.
• The contact at the customer has moved jobs. Your email reminders are now bouncing.

Using Trove’s payment plan functionality fixes all three of these issues

Using Trove’s payment plan functionality to split out the retention

The same payment-plan mechanism that splits an invoice into instalments can be used to carve the retention out as its own scheduled instalment, dated to the release date.

Here are the steps:

1. Using the payment plan feature, split the invoice into two instalments: the main payment on the due date and the retention payment usually a year later as in the image above.
2. Set up a chasing sequence in Trove so the customer gets a reminder two months before the retention is due.
3. This gives you a chance to make sure their details are correct and solve any disputes.
4. When the retention payment is due, Trove will send another reminder, taking the admin off your hands.