Retention and payment terms,
the money that moves last.

Retention is a percentage withheld from each payment to a subcontractor, held by the builder as security that the work will be completed properly and defects made good. In the common structure, part of the withheld money is released when the work reaches practical completion and the remainder after the defects period ends. That structure is common practice, not law. The percentage, what it applies to and the events that release it are whatever the written subcontract says, and if the subcontract says nothing, there is no basis for withholding anything.

Payment terms are the other half of the same subject, the agreed clock on which money falls due. They are the last commitment settled in the procurement workflow and the one with the longest tail, because terms agreed at award keep operating until the final retention release, often months after the trade left site. Together they answer the two questions behind every dollar on a job, when it moves and what security sits behind it.

Why it matters

Terms decide the timing of the job's cash, and retention decides where a slice of the job's money spends the year after handover. Both fail quietly. A timing gap between what the client pays and what the trades are owed shows up as a squeeze nobody priced, and retention with no tracked release date drifts from security into write-off, in either direction. Neither failure looks like a decision at the time, which is exactly why both need a written record and a date.

A residential builder sits in the middle of two payment rhythms that do not naturally agree. Above sits the client, paying against progress claims at contract stages, money that arrives after the work it pays for is built. Below sit the trades, paid against subcontract claims, and the suppliers, paid on account terms that run from invoice or statement regardless of when the client's money lands. The gap between those rhythms is the cash flow squeeze, and it is structural, not a sign of a job going badly. How builders carry it is the subject of the construction cash flow reference.

Payment terms are where that gap is either designed or ignored. The commitments made through purchase orders and subcontracts fix when money will fall due, and the verification work covered in receiving and invoice matching decides which of those invoices deserve to be paid. What remains is the discipline of actually paying well, on the terms agreed, at the moment they fall due, which is the territory of the accounts payable guide. This node covers the terms themselves and the retention ledger that hangs off them.

The operator observation at the heart of this node is blunt. Retention quietly becomes a write-off when nobody tracks release dates. The subbie moves on to other jobs, the builder's spreadsheet tab goes stale, and money that was security for twelve months becomes a rounding error nobody can reconstruct at year three. Experienced operators treat the fix as ordinary bookkeeping rather than virtue, a retention ledger with dates, chased like any other receivable and honoured like any other payable. The release diary is checked monthly, the first release is inspected and paid at practical completion without a phone call from the trade, and the defects release goes out when the period ends, not when someone asks.

The reason to hold that discipline is not tidiness, it is relationship capital. The builders who came through the recent downturn best were not the ones with the most work but the ones who managed capacity, documented their processes and protected their margins, and one of the quietest expressions of that discipline is paying well. A builder who releases retention on time without being asked is the builder trades keep turning up for, and in a market where capable trades choose whose programme to prioritise, that reliability is worth more than a marginally sharper rate. The wider playbook is in building through a downturn, and the practices for holding those trade relationships are covered in supplier management.

The other side of the ledger is risk. A record 3,596 Australian construction companies entered external administration for the first time in FY 2024-25, up 21 per cent on the prior year, and construction tops the industry count for insolvencies. Retention owed to you is money sitting in someone else's business through that weather, and in practice it is very hard to recover from a business that fails. That is a reason to chase your own retention on its dates, and part of why some jurisdictions have moved to retention trust arrangements on certain contracts.

Where software fits the workflow

Traditionally the incoming side and the outgoing side live in different places, claims in one file, supplier terms in another, retention in a tab nobody owns. The change worth making is structural, one record of what is claimable, what is due and what is held. In VIABUILD the incoming side runs through progress claims built from the job's actual stage structure, so what the client owes and when it was claimed is a record rather than a recollection, and commitments to trades and suppliers carry their agreed terms from the day they are raised. The builder still decides what to pay and when; what disappears is the reconstruction of who is owed what before every decision.

Terms and retention sit inside a legal frame that differs by state and changes over time. The points below are labelled by evidence class and are general information, not legal advice. Confirm the current rules for your jurisdiction before relying on any of them.

• Legislation. Security of Payment legislation in each state and territory gives parties who carry out construction work, and in many cases suppliers of related goods and services, statutory rights to progress payments, with strict deadlines and an adjudication process. Those rights bind the builder as the paying party just as they protect the builder as a claimant, and payment terms in subcontracts need to be written with the relevant Act in mind. Timeframes and forms differ by jurisdiction; see the security of payment guide and confirm the current Act for the state the work is in.
• Legislation. Some jurisdictions have retention trust or project account schemes that regulate how retention money must be held on contracts above certain values, with rules that have changed over recent years. Whether a scheme applies to a given residential subcontract depends on the jurisdiction and the contract, so confirm against your state's current legislation or building regulator before relying on retention arrangements either way.
• Common practice. Retention on residential subcontracts is commonly structured as a percentage withheld from each payment, released partly at practical completion and finally after the defects period. Amounts and triggers vary between builders and contracts; there is no universal percentage, and the subcontract is the only document that decides.
• Common practice. Supply-only accounts run on trade credit terms rather than retention, and typically carry retention of title clauses over the goods until payment. The credit account application is a contract, and its terms bind the builder the same way a subcontract does.
• Convention. Industry bodies (HIA, Master Builders) publish residential subcontract templates whose payment and retention clauses reflect state legislation. Most small builders are better served adapting these than drafting retention terms from scratch.

Illustrative only, including the percentage, which is simply what this example's subcontract says. A carpentry subcontract worth $80,000 provides for retention of 5 per cent of each payment, half released at practical completion and half at the end of a defects period the subcontract defines. Across the job the builder withholds $4,000. The ledger entry made at signing records the trade, the amount building up, and two trigger events with expected dates. At practical completion the work is inspected and $2,000 is released with the final payment, unprompted. When the defects period ends the following winter, the diary flags it, one door adjustment is closed out, and the last $2,000 goes out that week.

Now run the same job without the ledger. The $4,000 is withheld through deductions on four payments, recorded nowhere except inside those payment calculations. Practical completion passes in the rush of handover. The carpenter, juggling other jobs, asks about it eight months later, and the builder spends an afternoon reconstructing four payment records to work out what is actually held. Multiply by every trade on every job, in both directions, and the afternoon becomes the reason retention is the money most likely to be simply lost.

Retention (money withheld from payments as security for performance and defects), release trigger (the contractual event that makes retention payable), practical completion (the work finished apart from minor defects, as the contract defines it), defects period (the contractual period after practical completion for making defects good), trade credit (a supplier account with an agreed due date), payment claim (a claim for payment that can attract statutory rights under security of payment legislation), retention ledger (the per-job record of retention held and owed, with dates). Definitions for the wider vocabulary live in the construction glossary. From here the natural next article opens the next cluster, construction cost control, where the commitments and terms made in procurement become the numbers a job is steered by.

• Your state or territory's Security of Payment legislation and building regulator, for payment timeframes, claim and schedule requirements, retention trust rules and adjudication rights in your jurisdiction.
• HIA and Master Builders Australia, for residential subcontract templates whose payment and retention clauses are drafted against state legislation.
• Your own signed subcontracts and supplier credit account terms on each job, the primary record of what was actually agreed about amounts, triggers and due dates.