The practice of retainage dates back to the 1840s when the size and scale of England’s railway project demanded a significant increase of inexperienced and unqualified contractors into the labor market. To ward off some of the risk associated with the situation, the railway companies began to hold as much as 20% retainage as an assurance of contractor performance and insurance against contractor default.
In current times, retainage provisions are a standard point in negotiation with many contractors but are especially important for large-scale, complex, and costly construction projects such as hospitals and schools.
Unfortunately, keeping track of retainage (especially with multiple projects going on at once) can quickly become a very costly accounting nightmare. Thankfully, there is a solution and it lies in a significant feature in contractERP software.
What Can Go Wrong?
When you don’t use an accounting or ERP system that can handle retainage information (and most DO NOT), your company will quickly run into a myriad of difficulties and won’t have the effective means to deal with them. Workarounds don’t work and should be avoided at all costs because of the high costs they will inevitably cause in the end.
Such problems can include:
- Delayed and incorrect retainage billing to contractors
- Delayed receiving of retainage from contractors
- An unclear picture of what is owed to you, from whom and when. This creates costly guesswork and inaccurate estimations
- Confusion over which retainage provisions are contracted for each project
- Miscommunication and misunderstandings between distributors and contractors
- Complicated and time-consuming retainage fee inputting and tracking
- Incorrect and misleading accounting records, opening the door to financial and legal trouble
- Less financial protection if a contractor doesn’t complete work to specifications or goes into default
How contractERP Software Can Make It Right
True to its name, contractERP is a system that is built around individual contracts. That means each of your contracts is fully supported with personalized user roles, specific information, and built-in tasks that are all there to provide a seamless work environment, helping to keep your business in the black.
This software’s retainage feature stores specific retainage percentages for each individual contract and accurately (and in real time) tracks what you have billed, what you have received, and what you are still owed.
The fully integrated retainage feature in contractERP is, quite literally, a saving grace for project managers who are ultimately responsible for keeping all facets of a project running smoothly and profitably.
It’s also a huge timesaver for your company’s accountants who won’t have to piece together “fixes,” perform complicated calculations, or worry about being at fault for costly reporting errors.
So what does all this add up to for your business? Simply stated, more cash flow, more working capital, more profit.
You will no longer be paying for mismanaged billing and receiving or the time it takes to correct mistakes. You will no longer experience miscommunication and misunderstandings with contractors over retainage fees.
Instead, you will be collecting the retainage you deserve, on time every time, with ease. Cash flow will improve as well as your visibility into what affects it.
This contractERP feature will give you the confidence and power to solve more problems and focus better on the areas of your business that require your full attention.
Request a free contractERP demo for Door and Hardware Distributors.