Accounting for retainage

Hi everyone!

I was wondering if there’s a way in NetSuite to manage/account for retainage. I’ve thought of the following ways:

  • Manual journals entries
  • Accepting payments to a retainage receivable account
  • Credit note item where accounts receivable is credited and retainage receivables is debited

Unfortunately, neither of the above ways is endorsed by the company management. I was wondering if there’s different way to account for it.

I’ve found this resource on NetSuite website, but it doesn’t have anything that would help. I’d really appreciate any help

Rookie Asked on April 12, 2022 in Accounting.
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1 Answer(s)

Which side of the fence are you on? Do you have contracts with your customers that involve retainage or do you have contracts with vendors that involve retainage or both? How are you handling project management or contract management? What exactly are the requirements for managing and accounting for retainage? In the very simplest of terms, retainage is basically just AP/AR with different terms than the rest of the agreement. So in the very simplest scenario of vendors agreements with retainage, you could just create a separate PO line-item or totally separate PO, with a distinct bill with it’s own set of terms. On the customer side, it gets a slightly more complicated because you need to recognize revenue distinct from the payment terms, and you likely need some way to verify project completion before invoicing, so without knowing how you handle project management, whatever I tell you will probably be wrong. But the very simplest scenario, would basically be the reverse, where you have a sales order with a separate line item for which you invoice them separately and manually determine when to invoice that retainage (again, this wouldn’t account for revenue recognition, which would typically be done on when the work is completed, not when it should be billed).

Hope that helps! (although it probably doesn’t much, sorry) Really hard to tell from the limited information here what your situation is, and project management and revenue recognition in general can be a very deep, dark rabbit holes to go down depending upon the scenario.

Intermediate Answered on April 18, 2022.
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