What is Retention Payable?
Retention payable is the portion of a contractor or supplier invoice that the buyer withholds until the supplier completes specific obligations, such as fixing defects within a warranty period. The retained amount is a liability for the buyer until it is released to the supplier.
How It Works
- Withhold a fixed percentage (often 5 to 10 percent) from each progress payment.
- Record the retained amount as a payable rather than a cash outflow.
- Release the retention after defect liability period expires.
- Reclassify between current and non-current depending on the release date.
Saudi Context
Saudi construction contracts almost universally include retention clauses, typically 10 percent withheld and released after one year from project handover.
Example
On a SAR 1 million progress invoice with 10 percent retention, the buyer pays SAR 900,000 in cash and records SAR 100,000 as retention payable.