Retainage Overview
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, usually 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, Vision posts and tracks it throughout Billing, Accounts Receivable, Project Control, and the General Ledger.
After you establish retainage terms for your projects, each time you generate an invoice, Vision looks for retainage terms on the Misc tab of the Billing Terms form. If you have retainage terms set up for a project, Vision 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 options for when to bill clients for taxes on retainage amounts:
- When the retainage amount is withheld — Select Tax when Withheld if you want Vision to include the 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, Vision does not calculate taxes for the retainage.
- When you bill the client for the retainage — Select Tax when Invoiced if you want Vision 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, Vision also bills the tax for the retainage. (The actual calculation of the tax, however, occurs when the retainage is originally withheld.)
The option 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 (WBS) levels at which you process retainage. If you change this setting after generating the original invoice, Vision determines whether or not to calculate taxes for the retainage invoice based on the setting that applied at the time you generated the original invoice.
When Vision processes an invoice, it checks for this setting at the lowest WBS 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), Vision checks first for retainage terms at the task level. If a task does not have retainage terms, Vision 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 subledger terms, Vision 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 (), but you can override the default for individual projects.
If you use a billing group to consolidate billing for multiple projects, Vision handles retainage tax options in the same way as it does other billing term settings. The Separate terms option for the billing group determines whether Vision 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 the retainage is included in the tax basis for original invoices.