Jan. 3, 2022

Ep#12. Avoid retainage from being cash drainage

Ep#12. Avoid retainage from being cash drainage

On average,  sub contractors wait 167 days to receive their retainage payment.  It is usually 10% which is more than most make in operating profit.  So your entire profit is at risk and it takes an age to get your hard earned...

Retainage is a real issue

10% of the entire contract is withheld which is usually more than most flooring companies make in operating profit.

That means your entire profitability and livelihood hinges on collecting the retainage monies.

A study by the American Society of Subcontractors found in regard to retainage:

  • GC's wait 99 days to get paid
  • Subcontractors wait 167 days.

The old adage, we get paid when the GC gets paid is stuff and nonsense.

They are getting their payment 67 days earlier than you!

Why the GC hangs on to your money we can only speculate.  It could be leverage, it could be they like you being their bank and financing their products with your money.

Let's say your average company has $10 mill revenues.  Up to $1 mill is retainage.  Getting it 60 days earlier releases $166,000.  So we are sure you would rather have it.

We try to be less jaded and think that thye are just not paying attention.

So can you, the flooring contractor do anything about this?

Many have resigned to the belief that little can be done.

We know, and have proven it can be significantly improved. Here are 4 things you can do:

  1. Ask the GC when they will get their retainage payment.  It's in their contract.  They know.  Track it and be sure to follow up at that time to make sure they are cutting you a check
  2. Better completion discipline.  You cant bill when the job is not closed.  Get those change order and other documentation done correctly (see our earlier podcast on change orders).  We often see invoices going out 32 months late due to a lack of due diligence at project completion.
  3. The GC can get 50% of their retainage at 75% job completion.  By the time they get to the flooring package they are near to or past this threshold.  At least negotiate 5% retention once you the floor contractor get to 50% of job completion.  That way, at the end you only have 5% risk.
  4. Know your numbers.  Track retainage on your management dashboard.  Dont hide it in total receivables.  You should be tracking the overall amount and its aging.

Want better project completion discipline, bets in class change order management and critical management dashboards? Join our Flooring Academy

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