Set up retainage based on Application for Payment

Overview

Progress billing is often done for construction projects. Retainage is a percentage of invoice that is not billed until the project is complete and the customer has approved the work. Retainage gives the customer recourse if they aren't satisfied with the work done.

Things to know

• Retainage on a project is optional.

• Retainage can be calculated using a project-wide retainage rate or variable retainage rates by line item, depending on your Application for Payment settings.

• Retainage calculation mode affects the current Application for Payment (AFP) and, in some cases, subsequent Applications for Payment.

• Customer contracts specify if retainage is required and the retainage percentage.

• To progressively bill, your customers may require you to use the construction industry standard and submit Applications for Payment.

• Applications for Payment reflect deductions for retainage.

• Retainage must be set up before creating an Application for Payment.

• Retainage must be set up at both the account and project levels.

• Certain retainage settings can only be changed at specific points in the Application for Payment lifecycle.

• Progress billing is done at the project level.

• Final invoices include retainage charges that were deducted from previous invoices.

• Retainage can be withheld for projects not using Applications for Payment. See Create Retainage.

• Retainage is also known as holdback in Canada.

Retainage calculations in Applications for Payment

When using Applications for Payment, retainage can be calculated in one of two ways:

Project-wide retainage rate

Uses a single retainage rate applied consistently across all line items in the Application for Payment.

Item-level retainage rate

Allows retainage rates to vary by line item and by period. Retainage is accrued at the item level and carried forward across Applications for Payment.

Selecting a calculation

You control which calculation method is used through the Enable item-level retainage rate setting in the Application for Payment settings.

Set up retainage with Application for Payment

To deduct retainage from progress invoices, you'll first set up retainage receivable accounts and import them into ServiceTitan. Next, you'll set up retainage at the account level and the project level.

Set up retainage receivables accounts

• If you use Intacct:        

  • Add a new GL (general ledger) group called Retainage Receivable. See Map pricebook items to Item GL Groups.

  • Add a new GL account in Intacct called Retainage Receivable. See Map payment types to GL Accounts.

• If you use QuickBooks:        

  • Add a new GL account called Retainage Receivable. See Map pricebook items to a QuickBooks general ledger account.

Set up retainage at the account level

1. Go to the navigation bar and click Settings .

2. In the side panel, click Operations > Application for Payment. The Application for Payment screen opens. 

3. Complete the fields as described below:        

   1. Code: Enter the service Code you want associated with a task.

   2. Name: Enter Retainage or another name if you prefer.

   3. Item Description: Enter the task description you want to appear on the invoice.

   4. General Ledger Account: Select the GL retainage receivable account from the dropdown.

   5. Payment Term: Select a payment term from the dropdown.

4. On the Application for Payment screen, click Save.

These account-level settings support retainage billing regardless of whether retainage is calculated at the project level or item level.

Set up retainage at the project level

The retainage percentage entered at the project level is used when retainage is calculated using a project-wide retainage rate. If item-level retainage is enabled on the first application for payment, retainage rates may be edited per line item in the Application for Payment.

1. Open the project you want to set up retainage for.        

   Note: Retainage can only be set at the beginning of a project. You cannot enable retainage after the second Application for Payment has been made.

2. Click   to edit the project.  The Edit Project screen opens. 

3. Enable the Enable Retainage toggle.        

   Note: The retainage percentage shown is project-level retainage. If you want to change the percentage for your project, enter a value in Retainage Percentage.

4. Click Save.

Set up retainage at the item level

The Enable item-level retainage rate setting determines whether retainage is calculated using a single project-wide rate or variable rates at the line-item level.

The setting is turned off by default. When off, retainage is calculated using the project's retainage rate.

If you start the Application for Payment with project level retainage you cannot switch to item-level retainage on subsequent applications for payment. You can only have one retainage method on all AFP's either item or project level.

Caution: If item-level retainage is used on an Application for Payment, you cannot revert previous Applications for Payment back to project-wide retainage. Changes to this setting are tracked in audit history.

To enable item-level retainage:

1. Open the project you want to set up retainage for.

2. Click Actions > Add Application for Payment.

3. Alternatively, you can open an existing AFP by clicking Financials and selecting an Application for Payment in the Application for Payment section.

4. If creating a new AFP, enter the details.

5. In the Continuation Sheet screen, click Settings.

6. Click Enable item-level retainage rate.

7. When finished, click Save. 

Set up to collect partial retainage

Use the Settings tab in the Application for Payment screen to enable options that let you collect a portion of the retainage prior to the Description of Work being 100% completed.

The options below apply to both project-wide and item-level retainage calculations, though retainage amounts may differ depending on the calculation method used.

1. Search for the project and go to the project dashboard.

2. On the project dashboard, click Actions > Add Application for Payment.

3. If this is a new Application for Payment, choose how you want the Schedule of Values to be filled up at the popup.

4. On the Application for Payment screen, click Settings.

5. On the settings screen, you can enable the following options:        

   1. Allow retainage to be collected without 100% work complete: Enable this option if you want to collect retainage prior to completing the work at 100%.

   2. Enable Edit by Price: Use this option to bill work completed by price instead of quantity. 

6. Based on your selection, the Continuation Sheet updates to let you bill retainage even if the Description of Work has not yet reached 100% completion.

Want to learn more?

• Visit the Academy and enroll in Progress Billing with Application for Payment

• See Bill for retainage with Application for Payment