Key takeaways
What this article covers, in order:
- The retention you forgot about
- Three ways builders get paid
- Stage payments on a domestic job
- Valuations and retentions on a commercial job
- Keeping a retention register
- Materials and day-to-day costs
Building work gets paid in lumps: a deposit up front, stage payments as the job moves on, and on commercial jobs a slice held back as retention until well after you've packed up. Good bookkeeping for builders and tradespeople means recording each of those lumps so your books always show what you've earned, what you've been paid, and what's still owed to you. Retentions in particular have a habit of being forgotten, and forgotten money doesn't get chased.
The retention you forgot about
Gareth runs a small building firm in Cardiff. In autumn 2026 he's sorting old paperwork and finds a valuation from a job he finished over a year earlier. At the bottom: "Retention held: £1,500.00". Nobody ever invoiced for its release. Nobody chased it. It's not in his books anywhere.
This happens all the time. Retention is money you've earned but won't see for months, and if it's not sitting on your balance sheet as a debt owed to you, it effectively doesn't exist.
Three ways builders get paid
Before the numbers, it helps to be clear what each payment actually is.
| Payment type | What it is | How it sits in your books |
|---|---|---|
| Deposit before work starts | Money for work you haven't done yet | A liability (payment on account) until the work is done, then sales |
| Stage payment | Payment for a stage that's been completed | Sales invoice, then cash received against it |
| Interim valuation | Payment based on measured work to date, common on commercial jobs | Sales invoice for the value certified, less retention |
| Retention | A percentage held back by the client until completion and the defects period | A separate debtor: retention receivable |
The deposit point is worth slowing down on. If a client pays you £5,000.00 in Sep 2026 for a job starting in Nov 2026, you haven't earned it yet. Plenty of small builders keep simple cash-basis books, and that can work. But if you want your monthly profit to mean anything, it helps to see the deposit as money held for the client until the work is done.
Stage payments on a domestic job
Take a kitchen extension priced at £48,000.00, with stages agreed in the contract:
| Stage | % | Amount (£) |
|---|---|---|
| Start on site | 20% | 9,600.00 |
| Walls and roof complete | 30% | 14,400.00 |
| First and second fix complete | 30% | 14,400.00 |
| Practical completion | 20% | 9,600.00 |
| Total | 100% | 48,000.00 |
Raise an invoice at each stage. When the client pays, match the bank receipt to that invoice. If they pay short, say £14,000.00 against a £14,400.00 invoice because they're disputing a snag, leave £400.00 open on the invoice. Don't write it off and don't quietly mark it paid. Your aged debtors report will keep it visible until it's resolved.
We're keeping tax out of these figures to keep the arithmetic clear. Tax deductions on construction payments and VAT can change the amounts that actually land in your bank, so ask your accountant to set those up properly in your books.
Valuations and retentions on a commercial job
Now a subcontract on a commercial job. The contract value is £60,000.00 and the main contractor holds 5% retention, releasing half at practical completion and half at the end of a 12-month defects period. Payment is by monthly valuation of work done to date.
The key idea: valuations are cumulative. Each one says what's been done in total so far, and you get paid the difference from last time.
| Valuation 1 | Valuation 2 | Valuation 3 (practical completion) | |
|---|---|---|---|
| Gross value of work to date | 20,000.00 | 45,000.00 | 60,000.00 |
| Retention held to date | (1,000.00) | (2,250.00) | (1,500.00) |
| Net certified to date | 19,000.00 | 42,750.00 | 58,500.00 |
| Less: previously certified | 0.00 | (19,000.00) | (42,750.00) |
| Due this valuation | 19,000.00 | 23,750.00 | 15,750.00 |
At practical completion, retention drops from 5% (£3,000.00 on £60,000.00) to 2.5% (£1,500.00), so half is released and included in the £15,750.00.
Add up what's been paid: £19,000.00 + £23,750.00 + £15,750.00 = £58,500.00. The remaining £1,500.00 is due at the end of the defects period. £58,500.00 + £1,500.00 = £60,000.00, the full contract value. Good.
How to record it
Record each valuation at its gross value, with the retention split out:
- Valuation 1: sales £20,000.00. Trade debtor £19,000.00. Retention receivable £1,000.00.
- Valuation 2: sales £25,000.00 (the increase in gross value). Trade debtor £23,750.00. Retention receivable up by £1,250.00 to £2,250.00.
- Valuation 3: sales £15,000.00. Trade debtor £15,750.00. Retention receivable down by £750.00 to £1,500.00, because half is being released.
Check the last one: £15,000.00 of new work plus £750.00 of released retention equals the £15,750.00 due. Every pound is accounted for.
Now the £1,500.00 sits on your balance sheet as retention receivable, with a date next to it. That's the line Gareth didn't have.
The bank reconciliation side
When the main contractor pays £23,750.00, your bank reconciliation should match it to the trade debtor for valuation 2, not to sales directly. If you've set things up as above, the match is exact. Where builders get stuck is recording only the cash received as sales. Then retention never appears, the job looks less profitable than it was, and the money that's still owed is invisible.
Keeping a retention register
Retention periods outlast memories. Keep a simple register, separate from your accounts, and look at it monthly.
- [ ] Client and job name
- [ ] Contract value and retention percentage
- [ ] Retention held now
- [ ] Practical completion date
- [ ] Release date for the second half (for example, practical completion on 15 Oct 2026 means release around 15 Oct 2027)
- [ ] Date you invoiced or applied for release
- [ ] Date received
Put a reminder in your calendar a month before each release date. Clients rarely volunteer retention payments.
Materials and day-to-day costs
A few things that keep a builder's books honest:
- Merchant accounts: if you buy on account from a builders' merchant, record their invoices as bills and match payments to them, rather than just recording the monthly direct debit as "materials".
- Materials for a specific job: note the job on each bill. Even if your software doesn't track jobs, a reference in the description lets you total costs per job in a spreadsheet later.
- Van and fuel: keep a separate category, and note any personal use of the van.
- Cash jobs: bank them and record them like any other sale. Mixed cash and card income is fine as long as each sale is in the books.
How HelloBooks helps
HelloBooks gives you the pieces this needs: invoices and quotes, debtors and creditors ageing so unpaid stages and short payments stay visible, and a P&L and balance sheet where retention receivable shows up as an asset. Connect your bank through Open Banking (most UK banks and cards) or import a CSV statement, confirm categories in the review list, and the reconcile screen suggests a match for each line with a confidence score and the reason for it. You only work through the exceptions.
HelloBooks doesn't do job costing, so a job reference in descriptions is the practical workaround. On Pro (£14.99 a month) you get bills and approvals for merchant invoices plus unlimited users, so your office manager and accountant can work in the same books. More on our page for construction businesses, and see invoice software for raising stage invoices.
FAQs
Is retention income when it's held, or when it's paid?
On an accruals view, it's part of the value of work done, so it's earned when the work is certified. It just sits as a debtor until paid. If you keep cash-basis books, it won't show until the money arrives, so the retention register below matters even more.
What if a client deducts more retention than the contract allows?
Record what the contract says is due, and the short payment stays open on the invoice. Then raise it with the client using the contract wording. Your books shouldn't quietly accept the deduction.
Should deposits go straight into sales?
Not if you want monthly profit to be accurate. A deposit is for work not yet done. Hold it as a liability and move it to sales as the work happens.
How do I spot forgotten retentions in old books?
Look at each finished commercial job and compare the contract value to the total received. Any gap of roughly the retention percentage is a strong clue.
Do I need a separate bank account per job?
No. One business account is fine. Use clear invoice numbers and job references so payments match to the right job.
Put the retention on the balance sheet the day it's held back, and you'll never find £1,500.00 in a drawer again.
Start free, no card needed. Try HelloBooks Free
