Some customers for certain types of construction projects require you to hold back a certain percent of your total invoice or of each invoice (invoicing only for only a portion of the contract price) until you've completed the project satisfactorily. After the job is complete and it's agreed that you can collect the remaining percentage, you then create an invoice to the customer for the balance.
The procedure described here for handling retainage in QuickBooks will not only help you track who owes your for retention, but also track how much they owe. In addition, it helps to track the retention on your books as an asset until the customer pays the balance:
1. Set up a new account called Retainage Receivable-go to Lists > Chart of Accounts, click the Account button and select New. Select Other Current Asset for the account type.
2. Set up a new item called Retainage-go to Lists > Item List, click on the Item button and select New. Select Other Charge as the item type. Enter Retainage for the description, a negative for the Amount (for instance, -10% if your retainage is 10%), and the Retainage Receivable account you just setup for the Account.
3. Create an invoice for the total % completed-creating an estimate first can really automate this step because you have the option of invoicing a percentage of the estimate amount. Then add a line for the retainage. This will deduct retainage from the total invoice leaving the balance actually due from the customer. If your retainage varies, you can override the % on the invoice. Make sure your customers know that your invoice total already has the retainage deducted, many customers simply deduct a percentage from the invoices they receive when making a payment.
4. Memorize a Retainage Receivable report. Go to Reports > Customers & Receivables > Customer Balance Detail. Click on Modify Report, select the Filters tab, select Account and choose the Retainage Receivable account. Click the Memorize button and call the report Retainage Receivable. If you only want to see the unbilled retainage, periodically reconcile the Retainage Receivable account (Banking > Reconcile) and click on all the retainage that's been billed-they'll have offsetting amounts in both columns. Then add another filter to your memorized report to filter out cleared transactions by selecting Cleared for the filter and clicking No.
5. Once the job is completed, go to your Retainage Receivable report to see what's still owed. Then create an invoice using the Retainage item and change the amount to the amount still owed.