Q:

What is accounts receivable retainage?

A:

Quick Answer

In the accounts receivable process, retainage is a portion of the final payment of a contract for a product or service. This payment is withheld until the project is complete per the terms of the contract. The payment is withheld by the client or owner of the contract.

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Full Answer

Accounts receivable retainage funds are generally placed in a trust account until payment is released upon completion of the contract terms. This can include ensuring that all parts of the project are functioning in a satisfactory manner. There also cannot be any liens, including mechanic's liens, that are currently active. There are two options for reporting retainage: cash basis and accrual basis.

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