Using Retainage (Holdback) Accounting

Sage 300 ERP

Using Retainage (Holdback) Accounting

Accounts Payable lets you account for retainage (or a holdback) that occurs when your vendor withholds a percentage of an invoiced amount, usually by mutual agreement or according to a statute (such as a Builders Lien Act).

Note that there are two steps in processing retainage:

  1. First, you post an invoice, debit note or credit note that specifies a holdback (retainage) for the document.
  2. Later, you post a separate retainage invoice, debit note, or credit note to invoice the outstanding retainage amount.

Before Using Retainage Accounting

Before you can process retainage in Accounts Payable, you must:

  • Set the option to use retainage accounting on the Processing tab of the A/P Options form.

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 ERP.

You enter the invoice, debit note, or credit note using the Invoice Entry form, as usual.To indicate that retainage applies to the document, however, you select the Retainage option. (Note that this option appears only if you selected the Retainage Accounting option for your Accounts Payable system.)

The program then displays the retainage percentage, retention period, retainage rate, and the retainage terms from the vendor record. Unless the document is job-related, you can change these retainage factors for a particular document, as follows.

  • Retainage Amount

    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.

  • Retainage Percentage

    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.

  • Retainage Due Date

    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, if you want.

  • Retention Period

    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.

  • Retainage Rate

    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:

    • Use Original Document Exchange Rate - to use the same rate as the document you are processing.
    • Use Current Exchange Rate - to use the rate in effect when you process the retainage document to clear the outstanding retainage.
  • Retainage Terms

    You can use different terms for retainage documents (used to process invoices 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 vendor record, but you can change the retainage terms for a document, if you want.

Apply document transactions

Note that when you apply original debit notes or credit notes that include retainage in Invoice Entry, or when you apply credit notes in Payment Entry, 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.

Job-related retainage

If the document is job-related, you enter the retainage exchange rate and the retainage terms at the document level. However, because outstanding retainage amounts are tracked separately for each job-related detail, you enter a separate due date, retention period, and retainage amount or retainage percentage for each detail on a job-related document.

Taxes on Retainage

Tax on retainage is processed according to the Report Tax option selected on the A/P Options form.

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 Payable 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 that you 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.

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.

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.

For example, if you enter an invoice for $10,000 with 10% retainage, an 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/P Options form for generating retainage documents.

Adjusting Original Documents

Adjustment Entry lets you adjust retainage related to posted invoices, debit notes, and credit notes, as follows:

  • To change the retainage amount for an original document, you use the detail-entry grid 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 grid.

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 grid. 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.

If the original document was posted using a version of Accounts Payable earlier than version 5.4, you adjust the retainage debit or retainage credit for the whole document on the Retainage tab.

  • You specify retainage terms and the retainage exchange rate option for the whole document on the Retainage tab.

Note that if retainage was included on the original document, the program uses the retainage exchange rate setting from the original document.

  • 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 don't use a distribution code in the adjustment detail, the retainage detail is discountable by default.

  • 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.

Note that Accounts Payable 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.

Invoicing Outstanding Retainage

You invoice for outstanding retainage amounts, or holdbacks, either manually, using the Invoice Entry form, or automatically, using the Create Retainage Batch form. If you have posted debit notes and credit notes to which retainage applied, you also create retainage debit notes and credit notes using the Invoice Entry form and the Create Retainage Batch form.

Invoicing Manually for Retainage

Normally, you would use the Create Retainage Batch form to invoice periodically for retainage. However, Accounts Payable also lets you process outstanding retainage manually, as you require.

To invoice manually for outstanding retainage, or to manually process a credit note or debit note to clear an outstanding retainage amount, you use the Invoice Entry form.

You enter information for the retainage invoice, credit note, or debit note, as usual. Note that to invoice for retainage, however, you must:

  • Select Summary as the detail type. (Retainage documents are summary documents.)
  • 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. (These options are not available if you selected Item as the detail type.)

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 invoicing the outstanding retainage.

When you post the retainage documents (invoices, credit notes, or debit notes), the program transfers outstanding retainage amounts from the retainage control account to the payables control account.

Viewing Retainage Information

You can view retainage information on the:

  • Vendor Activity form.

    To review the relationships between retainage documents, you can use the Transactions tab on the Vendor Activity form.

    Select a retainage transaction, then click the:

    •  Document button to open the document in the transaction entry form.
    •  Open button to display information for the retainage document in the separate Document Information form.

    The Document Information form shows:

    • The original retainage amount and retainage due date.
    • The outstanding retainage amount (in the Retainage Amount field), if any.
    • The retainage documents used to clear the outstanding retainage amount for the original document, if you have processed any (on the Item Activity grid).
  • Vendors form

    The Outstanding Retainage field on the Activity tab of the Vendors form displays the amount of retainage outstanding for a selected vendor.

  • Aged Retainage report.

Revaluing Outstanding Retainage Amounts

If you use multicurrency, when you run Revaluation, the program also revalues amounts outstanding in the retainage control account.

For revalued outstanding retainage, the program creates general ledger entries to adjust the retainage control account rather than the payables control account.

If your Sage 300 ERP system uses the Realized and Unrealized Gain/Loss the accounting method to revalue multicurrency documents, the program also creates reversing entries for the next period. (You set the revaluation accounting method in the Company Profile, in Common Services.)

The Revaluation Posting Journal includes a separate section for retainage after the current revaluation for each vendor.

If you include job-related details on the posting journal, a retainage section appears on the Summary page after the current job details.