The Procurement Glossary » Retention Payment

Retention Payment

Finance & Payments

Definition

A portion of payment withheld until a supplier fully completes the work and any defects are remedied.

Explanation

Retention (common in construction) protects the buyer by holding back, say, 5–10% until final acceptance and the end of a defects-liability period. It incentivises the supplier to finish properly and fix snags.

Example

The contract retains 5% of each payment, released only after the defects-liability period ends.

Related terms

• Progress Payment — A payment made in stages as work progresses, typically tied to milestones on a project or large order.
• Milestone — A defined checkpoint in a project or contract, often tied to a deliverable and a payment.
• Acceptance — The buyer's formal confirmation that delivered goods or services meet the agreed requirements, often triggering payment.
• Performance Bond — A guarantee that a supplier will fulfil its contractual obligations, giving the buyer financial recourse if it fails.

Frequently Asked Questions

What is Retention Payment?

A portion of payment withheld until a supplier fully completes the work and any defects are remedied. Retention (common in construction) protects the buyer by holding back, say, 5–10% until final acceptance and the end of a defects-liability period. It incentivises the supplier to finish properly and fix snags.

Can you give an example of Retention Payment?

The contract retains 5% of each payment, released only after the defects-liability period ends.

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