What is retention money?
- By Book Keeping Pros
- Sources checked 16 Oct 2026
Definition
Retention money is an amount held back from a contractor's progress payments as security in case the work turns out to be defective or is finished late. The party paying keeps it until the contract's conditions for release are met, such as completion and fixing any defects, and then pays it out to the contractor.
Retention looks different from each side of the contract. For the business holding it, often a head contractor, it is money kept back from what it would otherwise have paid a subcontractor, due to be paid out once the release conditions are met. For the contractor whose payments were reduced, it is money for work already done that has not yet been received.
That makes retention easy to lose track of. A contractor with several jobs can have small retention amounts sitting with different customers, each due for release at a different time. A list for each contract showing what was held back, when it falls due for release and what has been claimed or paid keeps it from being forgotten. How retention money held or withheld is treated in the accounts is a question for your accountant.
Retention money is not the same as retention of title. Retention money is cash held back as security under a construction contract, while retention of title is a clause about who owns goods supplied on credit.
In Australia
In New South Wales, Building Commission NSW explains cash retention as security that a subcontractor gives a head contractor, in the form of money kept back from the subcontractor's progress payments to cover the risk of defective work or late completion. Building Commission NSW also lists cash security and retention money among the amounts that can be included in a payment claim in New South Wales.
Under the Building and Construction Industry Security of Payment Regulation 2020, Building Commission NSW says head contractors in New South Wales on projects valued above a set threshold must hold retention money in a separate trust account with an authorised deposit-taking institution, named with the head contractor's name and the words 'trust account'. It says any withdrawal must follow the terms of the head contractor's contract with the subcontractor or another agreement in writing, and that the head contractor must keep a ledger recording items such as deposits into and withdrawals from the account, and give it to the subcontractor at intervals of no more than 3 months, or at a different interval agreed in writing of no more than 6 months. It says the purpose is to keep subcontractors' retention money safe on major construction projects, including when the construction company involved becomes insolvent.
In Queensland, Business Queensland says the trust account framework under the Building Industry Fairness (Security of Payment) Act 2017 is meant to safeguard progress payments and retention amounts for contractors and subcontractors. Where a trust account is required, it says the contracted party, generally the head contractor, needs a retention trust account of its own to hold the cash retentions for all of its eligible contracts.
Worked example
| Month | Progress claim (AUD) | Retention held back (AUD) | Paid to subcontractor (AUD) |
|---|---|---|---|
| Mar 2026 | 20,000.00 | 1,000.00 | 19,000.00 |
| Apr 2026 | 30,000.00 | 1,500.00 | 28,500.00 |
| May 2026 | 16,000.00 | 800.00 | 15,200.00 |
| Total | 66,000.00 | 3,300.00 | 62,700.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Losing track of retention held back from each subcontractor because it sits inside the general bank balance.
- Forgetting retention that customers have held back from the business's own payments, so it goes unclaimed once it falls due for release.
- Confusing retention money with retention of title, which is about who owns goods supplied on credit.
Related terms
Related service
Accounts payable and receivable
Bills and invoices tracked, with you approving every payment.
Sources
- Retention money
Building Commission NSW. Current at 6 October 2026, released 6 October 2026. Checked 16 October 2026.
© State of New South Wales. For current information go to www.nsw.gov.au. Licence: CC BY 4.0.
- Making a payment claim
Building Commission NSW. Current at 24 March 2026, released 24 March 2026. Checked 16 October 2026.
© State of New South Wales. For current information go to www.nsw.gov.au. Licence: CC BY 4.0.
- Payments in the building industry
Business Queensland. Current at 24 June 2026, released 24 June 2026. Checked 16 October 2026.
© The State of Queensland, Business Queensland, licensed under CC BY 4.0 Licence: CC BY 4.0.