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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2 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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From an A/R Standpoint bill the customer with two items Services and create a Discount in NetSuite equal to the percentage.  Apply the discount and have the discount G/L code to a Retention to a Current Liability not A/R account.  The customer will pay only for the A/R amount payment can be posted for the net amount of the invoice and remove it from your Aging report.   When it comes time to bill for retention Set up an Item for Retention and instead of mapping the item to sales map it to the same account as the Discount.

From an A/P Perspective – Enter the PO / Contract into Netsuite with for the full amount.  When A/P processes the invoice for payment on the expense tab deduct the retention amount and code it to a retention payable account.  When you are billed for final retention….. code the bill to retention payable and the entries will clear out.

 

There ya go!

Rookie Answered on August 2, 2023.
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