Retainage

Retainage is a percentage of billings contractually withheld on an invoice, which will be billed to the client at a pre-determined point in the project, usually upon the project’s completion or upon reaching a major milestone, as specified in the contract.

Retainage is usually based on the entire invoice, but it may also be based on specific invoice sections. For example, you may bill the reimbursable and consultant expenses in full when the invoice is issued, but apply a 10% retainage to the remaining invoice sections until you complete the project satisfactorily.

On the Billing Terms form, you specify the percentage to be withheld from total billings, or from any combination of the six potential components of an invoice: labor, consultants, expenses, fees, units, or add-ons.

In addition to calculating the retainage on the invoice, DPS posts and tracks it throughout Billing, Accounts Receivable, Project Control, and the general ledger.

After you establish retainage terms for your projects, each time that you generate an invoice, DPS looks for retainage terms on the Misc tab of the Billing Terms form. If you have retainage terms set up for a project, DPS calculates retainage and reports it on the invoices for that project. The amount is shown in a separate section of the invoice titled Retainage.

To bill retainage, you must belong to a role with the proper access rights to bill retainage (Interactive Billing - Allow Final Processing).

Taxes on Retainage

You have two timing options for billing clients for taxes on retainage amounts:

  • When the retainage amount is withheld: Select Tax when Withheld if you want DPS to include retainage in the tax basis when calculating taxes for an invoice from which retainage is withheld. When you later bill the client for the retainage, DPS does not calculate taxes for the retainage.
  • When you bill the client for the retainage: Select Tax when Invoiced if you want DPS to exclude the retainage from the tax basis when calculating taxes for the original invoice from which retainage is withheld. When you later bill the client for the retainage, DPS also bills the tax for the retainage. (The actual calculation of the tax, however, occurs when the retainage is originally withheld.)

The option that you select generally depends on the tax regulations that apply.

You select these options on the Misc tab of the Billing Terms form for each of the work breakdown structure levels at which you process retainage. If you change this setting after generating the original invoice, DPS determines whether or not to calculate taxes for the retainage invoice based on the setting that applied at the time that you generated the original invoice.

When DPS processes an invoice, it checks for this setting at the lowest work breakdown structure level first before checking higher levels. For example, if a project has both phases and tasks, and the subledger terms for a phase are set up to allow retainage at the task level (Retainage by Task is selected on the Sub-Level Terms tab in Billing Terms), DPS checks first for retainage terms at the task level. If a task does not have retainage terms, DPS applies the retainage terms for the phase. If Retainage by Task is not selected for the phase but Retainage by Phase is selected in the project's subledger terms (on the Sub-Level Terms tab in Billing Terms), DPS checks for retainage terms only at the phase level or above.

You specify the default Tax when... setting for your company on the Misc tab of the Default Billing Terms form (Settings > Billing > Default Terms in the desktop application), but you can override the default for individual projects.

If you use a billing group to consolidate billing for multiple projects, DPS handles retainage tax options in the same way as it does other billing term settings. The Separate terms option for the billing group (in Billing > Billing Groups determines whether DPS uses the Tax when... settings for the main project for all subprojects in the billing group or uses the settings in the individual subprojects' billing terms.

On the invoice template, you can move the Retainage section ahead of the Taxes section if retainage is included in the tax basis for original invoices.

Related Topics:

  • Checklist: Setting Up Retainage
    To use the retainage feature you must first enable the feature, then enter additional accounting data that DPS uses to make postings during the billing process, or that you use to manually record retainage amounts in your general ledger as retainage amounts are received from clients.
  • Effects of Enabling Retainage
    After you enable the retainage feature, retainage-related fields and data appear in multiple areas of DPS.
  • Setting up Retainage Accounts
    Before you release retainage to be billed, you must set up new accounts to store retainage amounts temporarily. Your account setup determines the accounts to which retainage amounts are posted.
  • How Retainage is Calculated on Invoices
    The retainage amount withheld is usually based on the entire invoice, but it may also be based on specific invoice sections.
  • Displaying Retainage on Reports
    You can display retainage amounts on a number of accounts receivable and project reports.
  • Examples of How Retainage is Calculated Over the Life of a Project
    How retainage is calculated depends on whether you are generating the first invoice for a project, a subsequent invoice, or an invoice generated after the retainage limit is reached.
  • Examples of Mapped Retainage Accounts
    After you create retainage accounts, you must link the retainage accounts to invoice and accounts receivable accounts. The mapping process depends on whether you have one retainage account or multiple retainage accounts.
  • How to...
    After you enable and set up the retainage feature, retainage amounts are withheld from invoices for projects that use retainage, and then you eventually bill the withheld retainage in a separate invoice.
Parent Topic: Billing