Retainage is money you've earned but can't collect yet. On a contract with 10% retainage, a $20,000 progress invoice pays $18,000 now; the $2,000 sits with the client until the job is substantially complete, the punch list is closed, and the lien waivers are in. Its purpose is leverage: it keeps the contractor motivated to finish and gives the owner a fund to fix defects if they don't.
A worked number
A $120,000 contract billed in six equal draws at 10% retainage collects $18,000 per draw, $108,000 over the job, with $12,000 released at the end. If your overhead and the subs' final invoices land before that release, the job is cash-negative at exactly the moment it looks finished.
The mistake it hides
Counting retainage as collected. It isn't, and on a slow-paying owner it can take months after completion. Subs feel it hardest: a general contractor may hold retainage on them at the same rate the owner holds it on the GC, sometimes longer. Several US states cap retainage on public work and set release deadlines; private contracts are mostly whatever was signed.
In Obra
Record each draw as income at the amount actually received and keep the retainage as part of what's left to collect against the contract, so the project shows the true cash position. The retainage and progress billing calculator works out the held and released amounts for any draw schedule.