Retainage Is the Profit. You Are Financing It.

The last cheque on a construction job is usually the one the contractor earned. It is also the one that arrives months after the crew has left.

Take an illustrative case. A subcontractor runs a ten-month job billing $100,000 a month. Ten percent is withheld from every progress payment, which is ordinary: retainage on most work runs between 5 and 10 percent. By closeout the held balance is $100,000, a full month of revenue sitting in someone else’s account.

Now set that against margin. Average builder margins run near 11 percent, so the profit on a $1 million job is about $110,000. The retainage is $100,000. The contractor has, in effect, lent the job’s entire profit back to the project and will collect it after substantial completion, after the punch list, after the paperwork.

Three jobs, and it stops being abstract

One job at a time is survivable. Contractors do not run one job at a time.

Three concurrent projects of that profile put roughly $300,000 of retainage outstanding at peak. That is not a receivable in dispute, not a slow payer, and not a collections problem. Every dollar of it is contractually owed, with a defined release trigger, on work already completed and already accepted.

The retainage is also $300,000 the contractor is funding. Not from profit, because the profit is what is being held. From the operating line, from deferred equipment purchases, or from the mobilization capital that the next project needs. The bid that gets declined because the cash is not there to staff it is the real cost, and it never appears as a line item anywhere.

The receivable that generates nothing

Here is the part most contractors have never been told in plain terms. A standard receivables facility usually excludes retainage from the borrowing base outright.

The logic from the lender’s side is not unreasonable: the release date is contingent on completion and acceptance rather than on an invoice aging out, so it does not behave like ordinary trade paper. But the practical effect is severe. The single largest receivable balance on a contractor’s aged report is frequently the one line that produces zero availability, which means the business borrows against everything except the money it has already earned.

Zero availability on retainage is a structuring outcome, not a law of nature. Retainage is a contractual obligation with an identifiable payer, a defined trigger, and a documented amount. Lenders who underwrite construction specifically will treat it as its own eligible category with its own advance rate and its own reporting, rather than carving it out because it does not fit a general formula written for manufacturers.

The difference is easy to size. Take the $300,000 outstanding across those three jobs. Under a facility that excludes retainage, it generates nothing. Under one that treats it as eligible at, say, a 50 percent advance, which is an ordinary starting point for illustration rather than a quoted term, the same balance produces $150,000 of availability. That is the mobilization capital for the next project, already earned.

What to do about it, in order

Start by measuring it. Most contractors can state their receivables total and cannot state their retainage balance separately, because the accounting system reports them together. Pull it out as its own number, by job, with the expected release date for each.

Then age it against completion rather than against the invoice date. A retainage balance ninety days past substantial completion is a different asset from one on a job still in progress, and any lender willing to advance against it will draw that distinction.

Then ask specifically. A general working capital request produces a general facility with the standard exclusions. A request that presents retainage as a separate, documented, dated asset gets underwritten as one.

How Thalos Capital Approaches This

Thalos Capital structures asset-based facilities for contractors where retainage is treated as an eligible category rather than an exclusion, sized against the balance and its release schedule, and matched to sources whose mandate covers construction receivables specifically. Equipment and general trade receivables get financed alongside it, each against what actually secures it.

The analysis starts with the aged report broken out by job and stage, because the eligibility conversation cannot happen until the asset is visible. From there it is a question of which sources underwrite this collateral and what each will advance, run as a comparison rather than a single application.

Retainage structuring sits inside a broader borrower-side practice across equipment, working capital and asset-based lending, from $50 thousand to $100 million and above.

A contractor with $300,000 of retainage outstanding and no availability against it is not short of assets. They are short of a facility built for the assets they have. The distinction matters because the first problem takes years of retained earnings to solve and the second takes a structuring conversation. The profit on the last three jobs is sitting there either way. The only question is whether it is working.

Most financing situations have more options than the borrower initially sees. A conversation is enough to map them. Submit your financing request at https://thaloscapital.com/contact.