Key takeaways
What this article covers, in order:
- Why builders' books go sideways
- Progress claims, in plain English
- Recording retention properly
- Retention you hold from subcontractors
- Deposits before work starts
- Variations
On a building job, the client rarely pays the full amount of each claim straight away. They hold back retention, they pay deposits before you start and they argue about variations. The fix, and the core of bookkeeping for tradies on bigger jobs, is to invoice each progress claim in full, record the retention as its own receivable, and keep deposits and variations visible, so your bank deposits match and you always know how much is still owed to you.
Why builders' books go sideways
Dan is a builder in Toowoomba (made up for this example). He's halfway through a $180,000 renovation. The client's payments land in his account as round-ish numbers that never match his invoices exactly, because the contract lets the client hold back 5% of every claim as retention.
After a few months his receivables report says the client owes him $9,000 that he's "sure they paid". His bank says otherwise. Nothing's wrong with the client. The $9,000 is retention, and it isn't due until the job's finished and the defects period is over. But because it's sitting in the same bucket as overdue invoices, Dan can't tell what's genuinely late.
Progress claims, in plain English
A progress claim is an invoice for the portion of the job completed so far, usually a percentage of the contract or a stage like "slab", "frame", "lock-up" and "fixing". Each claim is a normal tax invoice for that stage.
Dan's contract is $180,000 (we're keeping GST out of the figures to make the maths readable; code it correctly on your real invoices). His claims and retention look like this:
| Claim | Stage | % of contract | Claim amount | Retention held (5%) | Paid by client |
|---|---|---|---|---|---|
| 1 | Demolition and slab | 20% | $36,000 | $1,800 | $34,200 |
| 2 | Frame | 30% | $54,000 | $2,700 | $51,300 |
| 3 | Lock-up | 25% | $45,000 | $2,250 | $42,750 |
| 4 | Fixing | 15% | $27,000 | $1,350 | $25,650 |
| 5 | Practical completion | 10% | $18,000 | $900 | $17,100 |
| Total | 100% | $180,000 | $9,000 | $171,000 |
Check: $171,000 + $9,000 = $180,000.
Recording retention properly
Here's the approach most bookkeepers use:
- Invoice the full claim. Claim 1 is an invoice for $36,000. Your sales and receivables both go up by $36,000.
- Record the payment that actually arrives. $34,200 lands in the bank. Apply it to the invoice.
- Move the $1,800 to a separate account called something like "Retentions receivable", using a journal or credit against the invoice. The invoice now shows as paid, and the $1,800 is sitting in its own clearly labelled account.
After all five claims, the Retentions receivable account holds $9,000, and the customer's normal receivables balance is zero. Now anything overdue in receivables really is overdue.
When the retention is released, it comes in as cash against that account. Many contracts release part at practical completion and the rest after the defects liability period, but your contract decides that, not a rule of thumb. If Dan's contract releases half at each point, he'll see $4,500 come in at practical completion and $4,500 at the end of the defects period, and the Retentions receivable account goes back to zero.
Some states and territories have rules about how retention money must be held on certain jobs. If you're unsure whether they apply to you, ask your accountant or your industry association before you set anything up.
Retention you hold from subcontractors
The same thing happens in reverse. If Dan holds back 5% from his plasterer's invoices, he records the full bill, pays the net amount, and moves the held-back portion to a "Retentions payable" account. That's money he owes, and it should be visible as a liability so it doesn't get spent by accident.
Plasterer's bill: $12,000. Retention held: $600. Paid: $11,400. Retentions payable: $600 until it's released.
Deposits before work starts
A deposit taken before you've done any work hasn't been earned yet. The cleanest way to handle it:
- Record the deposit as a liability, such as "Customer deposits received".
- When you issue the first progress claim, apply the deposit against it.
Dan didn't take a deposit on this job, but suppose he had taken $9,000 in Aug 2026. Claim 1 would be $36,000, less $1,800 retention, less the $9,000 deposit applied, so the client would pay $25,200 instead of $34,200. Check: $36,000 − $1,800 − $9,000 = $25,200. The deposit liability would go back to zero, and the bank deposit of $25,200 would match.
Variations
A variation is a change to the original scope, and it's where plenty of builders lose money they've earned. Two habits:
- Invoice variations separately, or as a clearly labelled line on the next claim, so they don't blur into the contract percentage.
- Get them approved in writing before the work, so there's no argument at payment time.
Your contract sum plus approved variations is what you can bill in total. Keep a simple running list per job.
Materials and supplier accounts
Builders often run trade accounts at a couple of suppliers. Enter those bills as they arrive (not when you pay them), so your payables report shows what you really owe. When the monthly payment goes out, match it to the bills it covers. If a supplier sends a credit note for returned materials, enter it and apply it to the next bill, otherwise the payment won't match.
A monthly checklist for builders and tradies
- [ ] Every progress claim and variation invoiced in full
- [ ] Payments applied, retention moved to Retentions receivable
- [ ] Retentions receivable listed by job and expected release date
- [ ] Retentions payable listed by subcontractor
- [ ] Deposits held shown as a liability until applied
- [ ] Supplier bills entered on arrival, credit notes applied
- [ ] Bank account and any business cards reconciled
- [ ] Receivables report reviewed: anything genuinely overdue gets a phone call
GST belongs on each claim and bill as usual. Code it correctly; your BAS agent or accountant handles lodgement.
How HelloBooks helps
HelloBooks handles the invoicing and debtor side: invoices and quotes, unlimited email payment reminders and AR and AP ageing reports, so you can see which claims are actually overdue. Bills sit in the payables side so trade accounts are visible before they're paid.
Connect your bank account (most Australian banks and cards are supported) or import a CSV statement. On the reconcile screen, each bank line gets an AI match suggestion with a confidence score and the reason it picked that match, and you only work through the exceptions, like a part-payment that needs retention split out. Once a month is reconciled and signed off, you can lock it, and the reconciliation report exports as PDF or CSV for your accountant.
Pro (A$30 a month) adds bills and approvals, recurring invoices and unlimited users and roles, which suits a small crew with someone in the office. You can invite your bookkeeper or accountant into the same books. See bookkeeping features and pricing.
FAQs
Should I invoice the full progress claim or the amount after retention?
Invoice the full claim. Record the retention separately as a receivable. That keeps your sales correct and makes the retention easy to track and chase.
Is retention money income when I invoice it?
It's part of the claim you've invoiced, so it's in your sales. The question of when it counts for tax purposes is one for your accountant, especially if you use cash-basis reporting.
How do I track retentions across several jobs?
Keep one Retentions receivable account, and a simple list showing each job, the amount held and the expected release date. Review it monthly.
What if a client never releases the retention?
Chase it like any other debt once it's due under the contract. If it's disputed, get advice. Don't leave it sitting quietly on your books for years.
Do I record a deposit as a sale?
Not straight away. Record it as a liability until you've done the work, then apply it to the progress claim.
Separate the retention from the real debts, and your receivables report will start telling you the truth.
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