Retainage (or retention) is a percentage of each construction progress payment — commonly 5 to 10% — that the owner or general contractor holds back until the project is substantially complete. It is meant to ensure the work is finished properly.
How it affects cash flow
Retainage means a contractor is never fully paid for work already done until closeout, which can be months away. On a large project, the withheld amount adds up to real money sitting out of reach while payroll and materials for the next phase come due. Subs feel it most, since it stacks on top of already-slow net terms.
How funding handles it
Construction factoring generally advances against approved progress billings but treats retainage separately — it is typically funded when it is billed and approved for release at closeout, since it is not payable until then. Good financing is structured around each project's retainage schedule.