Retentions are a constant frustration in UK construction — money earned, but not received, sometimes for 12–24 monthsafter completing a job. For many construction businesses, retentions quietly erode cashflow, distort margins, and make forecasting almost impossible.
But with the right system, retentions become predictable, trackable, and recoverable — not something that disappears in a spreadsheet.
At Thomas Emlyn Ltd, we help builders, subcontractors, and trades manage retentions properly so they can protect cashflow and strengthen profitability.
What exactly are retentions, and why do they cause so many problems?
A retention is a portion of your invoice held back — usually 3–5% — until the end of a defect period. Problems arise when retentions aren’t tracked properly, get buried in paperwork, or are forgotten entirely. Without a system, businesses lose thousands in unclaimed retentions every year.
Common issues construction firms face:
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Retentions logged in spreadsheets but never updated
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Firms don’t know when the defect period ends
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Clients don’t issue final certificates on time
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Retentions left unclaimed because nobody is responsible for chasing them
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Forecasts don’t include upcoming retention releases
The issue isn’t retentions themselves — it’s lack of visibility.
How can I manage retentions properly and stop losing money on them?
The best way to deal with retentions is to track every single one in Xero, automate reminders for due dates, and include them in weekly financial reviews. A proper retention system gives you control: you know what’s due, when it’s due, and who needs to be chased.
1. Track retentions properly in Xero
This is the step 90% of construction firms skip.
In Xero, you should:
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Create a retention tracking account
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Post retentions separately when raising the invoice
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Clearly record the defects liability period end date
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Categorise retentions by client or project
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Run monthly reports on “Retentions Held”
This transforms retentions from forgotten money into visible money.
2. Build a simple retention log
Xero gives you accuracy; a retention log gives you visibility.
Your log should list:
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Project name
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Client
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Retention amount
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Defects end date
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Expected release date
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Stage 1/Stage 2 retention split
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Who is responsible for chasing
We set this up as part of the Thomas Emlyn Ltd Virtual Finance Office (VFO) — meaning your retentions are always monitored.
3. Communicate retention timelines at the start
Many disputes happen because expectations weren’t clear.
Agree in writing:
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The % being held
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The defect period
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What certificates are needed
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Who signs them off
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Exactly when the release will be paid
This prevents “We’re still reviewing it” conversations later.
4. Chase retentions proactively — not reactively
You should be chasing before the defects period ends.
Good practice:
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Set reminders 30 days before due dates
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Request the final certificate
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Confirm no outstanding snags
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Reissue the retention invoice if required
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Follow up weekly until paid
When you have a clear system, clients take retention claims more seriously.
5. Include retention forecasts in cashflow planning
Retentions release significant cash — often in big chunks.
For example:
One subcontractor we support releases around £80k–£120k in retentions per quarter because their log is updated weekly and linked to a rolling cashflow forecast.
You cannot plan confidently without knowing when retention money is coming in.
How can Xero help me stay on top of retentions?
Xero can track retentions automatically, create reports for upcoming releases, and alert you when key dates approach. When set up properly, it becomes the central source of truth for your retention system — not a forgotten spreadsheet.
Xero benefits include:
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Clear retention balance per job
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Visibility of total value of retentions held
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Automated due-date reminders
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Monthly reporting for directors
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Perfect for handing off to a finance assistant or VFO
A retention system doesn’t work without consistency — Xero provides exactly that.
Why managing retentions well improves your margins and reduces stress
Retentions tie up cash you’ve already earned. Managing them properly boosts cashflow, strengthens your margins, and prevents financial surprises. When retentions stop slipping through the cracks, you gain both confidence and control over your profitability.
Other benefits:
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Better supplier relationships
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Fewer last-minute cash squeezes
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Cleaner year-end accounts
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Stronger credibility with main contractors
It’s not about chasing harder — it’s about setting up a smarter system.
How Thomas Emlyn Ltd helps construction firms take control of retentions
Our Virtual Finance Office (VFO) includes a full retention management system:
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We set up Xero retention tracking correctly
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We build your Retention Log and update it weekly
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We monitor all upcoming release dates
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We chase certificates and approvals on your behalf
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We keep you informed with a monthly Retention Release Forecast
Construction companies often lose thousands each year to unclaimed or forgotten retentions. We make sure that never happens again.
FAQs
1. What percentage of my contract value should I expect to be held as retention?
Typically 3–5% in the UK, though some main contractors push for more. Always negotiate and ensure the percentage is clearly stated in the contract. If it’s above 5%, question why and request justification.
2. How do I record retentions correctly in Xero?
Track them as a separate line item with a unique retention account. Document the release date, invoice reference, and contract details. This allows Xero to produce reliable retention reports and automated reminders. We set this up for all VFO clients.
3. When should I chase a retention?
Start 30 days before the defects liability period ends. Confirm snagging is complete, request certificates, and agree the payment date. Avoid waiting until it’s overdue — proactive chasing gets faster results.
4. What if the client refuses to release the retention?
Document everything. If you’ve met contract requirements, you have the legal right to request payment. Escalate in writing, involve the quantity surveyor, and reference your contract terms. If necessary, use adjudication — but most cases resolve before then.
5. Should I offer a discount to get retentions released early?
It can make sense for large retentions where cashflow is tight. A 2–3% discount can be cheaper than borrowing to cover payroll. But use this sparingly — it shouldn’t become normal practice.
Next Steps
If you don’t know exactly how much money you’re owed in retentions — or when you’ll receive it — the system needs fixing.
At Thomas Emlyn Ltd, we design retention systems that give you clarity, confidence, and control over your cashflow.
📞 Book a discovery call here and we’ll review your current process, show you where retentions are slipping through the cracks, and help you tighten your system fast.
Thomas Emlyn Ltd
Stronger Margins – Healthier Cashflow – Sustainable Growth
