How do I add retention to an invoice?

To handle retention (also known as retainage) in QuickBooks Online, you need to set up a specific account and service item. This allows you to record the amount you are withholding from a contractor until the job is complete.

Step 1: Create a Retainage account

First, set up an account to track the money you are holding.

1. Select the Settings gear icon.
2. Select Chart of Accounts.
3. Select New.
4. In the Account Type dropdown, select Other Current Assets.
5. In the Detail Type dropdown, select Retainage.
6. Enter a name, such as “Retainage Receivable.”
7. Select Save and close.

Step 2: Create a Retainage item

Next, create a service item to add to your invoices.

1. Select the Settings gear icon.
2. Select Products and Services.
3. Select New, then choose Service.
4. Enter a name for the item (for example, “Retainage”).
5. Under the Sales information section, ensure the I sell this product/service to my customers box is checked.
6. In the Income account dropdown, select the retainage account you created in Step 1.
7. Select Save and close.

Step 3: Add retainage to an invoice

When you are ready to invoice the contractor, include the retainage amount.

1. Select + New.
2. Select Invoice.
3. Select the appropriate customer.
4. Enter the line items for the work completed.
5. On the next line, select the Retainage item you created.
6. In the Rate or Amount field, enter the retainage amount to be withheld as a negative number (for example, -500.00).
7. Verify that the invoice total reflects the payment due now (the net amount), while the retainage is tracked separately.
8. Select Save and close.

When the job is complete and you are ready to release the funds, you can create a second invoice or use a credit memo using the same Retainage item, entering the amount as a positive number to zero out the balance.