You can use Accounts Receivable to account for retainage (or a "holdback") that occurs when your customer withholds a percentage of an invoiced amount, usually by mutual agreement or according to a statute (such as a Builders Lien Act).
Before you can process retainage in Accounts Receivable, you must:
- Set the Retainage Accounting option on the Processing tab of the A/R Options screen.
- Specify retainage settings for customers on the Retainage tab of the A/R Options screen. For more information, see A/R Options Screen.
- Specify a retainage account for each account set in your Accounts Receivable system. For more information, see A/R Account Sets Screen.
There are two steps in processing retainage:
- First, you post an original invoice, debit note or credit note that specifies a holdback (retainage) for the document.
- Later, you post a separate retainage invoice, debit note, or credit note to invoice the outstanding retainage amount.
Entering Original Documents with Retainage
An invoice, debit note, or credit note from which retainage is taken is called an "original document" in Sage 300.
You enter the original invoice, debit note, or credit note using the A/R Invoice Entry screen, as usual. To indicate that retainage applies to the document, you select the Retainage option. (This option appears only if the Retainage Accounting option is selected for your Accounts Receivable system.)
When you post a prepayment, Accounts Receivable applies it automatically to a matching invoice only if both the prepayment and the invoice are not job-related. If either the prepayment or the invoice is job-related, the program does not apply the prepayment.
The program then displays the retainage percentage, retention period, retainage rate, and the retainage terms from the customer record. You can change these retainage factors for a particular detail or for the document, as follows:
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Retainage Amount. (specified for a document detail)
To calculate the retainage amount, the program multiples the document amount (or the document total, if you include taxes in retainage) by the retainage percentage. You can enter a new retainage amount, if necessary. When you enter an amount to replace a calculated amount, the program recalculates the retainage percentage.
The retainage amount is subtracted from the document amount (or the document total) to calculate the amount due.
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Retainage Percentage. (specified for a document detail)
The program uses the retainage percentage to calculate the retainage amount.
You can enter a different retainage percentage in the Retainage Percentage (%) field. When you enter a new percentage, the program recalculates the retainage amount.
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Retainage Due Date. (specified for a document detail)
The program calculates the retainage due date (the date the outstanding retainage is due for invoicing) by adding the number of days in the retention period to the original document date. You can enter a different due date.
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Retention Period. (specified for a document detail)
The program uses the retention period to calculate the due date for the retainage document. When you change the retention period, the program recalculates the retainage due date, and vice versa.
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Retainage Rate. (specified for the document on the Retainage tab)
You use this field to specify the method the program will use to determine the exchange rate for the retainage document when you eventually process it.
You can choose one of the following methods:
- Use Original Document Exchange Rate. Select this option to use the same rate as the document you are processing.
- Use Current Exchange Rate. Select this option to use the rate in effect when you process the retainage document invoicing the customer for the outstanding retainage.
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Retainage Terms. (specified for the document on the Retainage tab)
You can use different terms for retainage documents (used to invoice for outstanding retainage) than you used for the original document from which the retainage was taken.
The program displays the code specified for retainage terms in the customer record, but you can change the retainage terms for a document, if necessary.
Apply Document Transactions
When you apply original debit notes or credit notes that include retainage using the A/R Invoice Entry screen, or when you apply credit notes using the A/R Receipt Entry screen, only the original document balances are affected.
Outstanding retainage amounts remain with original documents until you post retainage documents or adjustments to clear the outstanding retainage.
Posting Original Invoices, Debit Notes, and Credit Notes
When you post the original retainage document, the program deducts the retainage from the document total, and posts the amount to the retainage control account.
Example: You enter an invoice for $10,000 with 10% retainage. The invoice is posted for $9,000 with retainage outstanding of $1,000.
The retainage amount remains in the control account until you invoice it in accordance with:
- The retention period or retainage due date specified for the invoice.
- The number of days in advance specified on the A/R Options screen for generating retainage documents.
Adjusting Original Documents
You can adjust retainage for existing invoices, debit notes, and credit notes using the A/R Adjustment Entry screen, as follows:
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To change the retainage amount for an original document, you use the detail-entry table to adjust each detail or to add a new detail that includes retainage. Enter the amount by which to adjust retainage in the retainage debit or retainage credit fields on the table.
You can also add retainage to a document that did not include retainage. You enter the retainage due date, as well as the retainage amount, for each detail on the detail-entry table. You also enter retainage terms and the retainage exchange rate for the document, if you are adding retainage to a document for the first time.
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You specify retainage terms and the retainage exchange rate option for the whole document on the Retainage tab.
Note: If retainage was included on the original document, the program uses the retainage exchange rate setting from the original document.
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If you add a new detail to which retainage applies, the retainage document detail inherits the Discountable status from the distribution code used in the adjustment detail.
If you do not use a distribution code in the adjustment detail, the retainage detail is discountable by default.
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You can change both the retainage amount and add or change document details. The program then creates two entries: one for the detail adjustment, and the other for the retainage adjustment. It does not create a compound entry.
When you post the adjustment, the program adjusts the outstanding retainage account.
No Retainage Calculation for Adjustments
Accounts Receivable does not calculate any retainage on adjustment transactions. You must enter the retainage manually, whether you are adding it for the first time, or adjusting existing retainage debits or credits from original documents.
When you adjust retainage invoices, debit notes, and credit notes that you processed to clear outstanding retainage amounts, the Retainage Debit and Retainage Credit fields do not appear. You can change the distribution code, general ledger account, and debit or credit amount using the detail entry table, as you do for any adjustment that does not include retainage.
Note: Because outstanding retainage amounts have already been cleared, no adjustment to outstanding retainage is made. The adjustment is to the receivables control account and another account, such as an expense account, that you specify.
Invoicing Outstanding Retainage
You invoice for outstanding retainage amounts, or holdbacks, either manually, using the A/R Invoice Entry screen, or automatically, using the A/R Create Retainage Batch screen. For more information, see A/R Create Retainage Batch Screen.
If you have posted debit notes and credit notes to which retainage applied, you also create retainage debit notes and credit notes using the A/R Invoice Entry screen and the A/R Create Retainage Batch screen.
Note: Accounts Receivable uses the Summary detail type for processing outstanding retainage.
Invoicing Manually for Retainage
Normally, you would use the A/R Create Retainage Batch screen to invoice periodically for retainage. However, Accounts Receivable also lets you process outstanding retainage manually, as you require.
To invoice
You enter information for the retainage invoice, credit note, or debit note, as usual. However, to invoice for retainage, you must select Retainage Invoice, Retainage Credit Note, or Retainage Debit Note as the document type, consistent with the original retainage document for which you are now processing outstanding retainage.
Because outstanding retainage remains associated with the original retainage document, you must use a retainage invoice if the original document was an invoice, a retainage debit note if the original document was a credit note, and a retainage debit note if the original document was a debit note.
Use the Original Document field to specify the original retainage document for which you are processing the outstanding retainage.
When you post the retainage invoices, credit notes, or debit notes, the program transfers outstanding retainage amounts from the retainage control account to the receivables control account.
Taxes on Retainage
Tax on retainage is processed according to the Report Tax option selected on the A/R Options screen. The option provides the following alternatives:
- At Time Of Original Document.
If you select this option, the program calculates and reports (posts) tax on retainage when you post an original document that includes retainage.
- As Per Tax Authority.
If you select this option, Accounts Receivable calculates tax when you post an original document, but reports (posts) the tax as required by each tax authority. The tax reporting requirements for each tax authority are specified by the Report Tax On Retainage Document option in Tax Services. The tax authority can specify No Reporting, At Time Of Retainage Document, or At Time Of Original Document.
Some tax authorities require you to report tax when you post a retainage document. Others let you report tax when you post an original document to which retainage applies.
- If the tax authority reports tax At Time Of Original Document, the tax amount is calculated and the tax tracking reports are updated immediately when you post original documents.
- If the tax authority reports tax At Time Of Retainage Document, the tax amount is calculated when you post the original document, but it is not reported until you post the retainage document.
Note: To report tax, the program posts tax amounts to a tax liability account and updates the tax tracking reports. The timing of the tax liability on retainage documents depends on the tax authority.
Viewing Retainage Information
You can view retainage information on the following screen
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Select a retainage transaction on a document tab, and then click the Edit button
in the Document Number column to display information for the retainage document. -
This screen shows:
- The original retainage amount, the outstanding retainage amount, if any, and the retainage due date (on the Header tab).
- The retainage documents used to clear the outstanding retainage amount for the original document, if you have processed any (on the Transactions tab).
- A/R Customers.
The Outstanding Retainage field on the Activity tab of the Customers screen displays the amount of retainage outstanding for a selected customer.
- A/R Aged Retainage Report.
For more information, see Printing the A/R Aged Retainage Report.
Writing Off Outstanding Retainage Amounts
You use the A/R Create Write-Off Batch Screen to write off small or uncollectible outstanding retainage amounts from original retainage invoices, debit notes, or credit notes. For more information, see A/R Create Write-Off Batch Screen.
When you write off outstanding retainage, the program creates adjustments to remove balances from the retainage control account. A corresponding debit (or credit) to balance the entry is entered to the write-off account specified for the customer's account set.
Revaluing Outstanding Retainage Amounts
If you use multicurrency, when you run Revaluation, the program also revalues outstanding retainage amounts.
For revalued outstanding retainage, the program creates general ledger entries to adjust the retainage control account rather than the receivables control account.
The Revaluation Posting Journal includes a separate section for retainage after the current revaluation for each customer.
If you include job-related details on the posting journal, a new retainage section appears on the Summary page after the current job details.