Managing cash flow through retention and staged payments in construction

• Cash flow challenge: Retention and delayed staged payments leave my business short of working capital, even when projects are progressing.

• Perfect for: Contractors and subcontractors managing long projects where payments are held back until milestones are reached or defects are resolved.

Novuna helps construction firms unlock cash tied up in retention and staged payment agreements,  either through our award winning in-house service or by comparing the market to find the best fit for your business. We compare providers, help you apply, and make sure you get the right deal for your project needs.

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Understanding retention and staged payments in construction

In UK construction contracts, it’s common for clients to withhold a percentage of payment (retention) to cover potential defects. Payments are also staged around project milestones rather than being released all at once. While this protects the client, it creates pressure on contractors who must fund labour, materials and overheads upfront.

Common cash flow pressures contractors face

• Retention holdbacks: Typically 3–5% of the contract value, sometimes withheld until months after completion.

• Slow milestone approvals: Staged payments often depend on sign-offs, which can delay cash flow.

• Mismatch of costs vs payments: Expenses for staff, suppliers and equipment run continuously, while payments come in chunks.

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Practical ways to manage cash flow under retention

• Negotiate fairer retention terms: Push for lower retention percentages or earlier release of funds. Even reducing retention by 1–2% can free up valuable cash.

• Align staged payments with real costs: Structure your payment schedule so it reflects when you incur heavy costs, such as materials ordering or subcontractor payments.

• Track project progress closely: Detailed progress reporting helps you get staged payments approved faster and avoid disputes.

• Build in contingency: Plan for delays in staged payment release by holding a cash buffer or arranging a funding line.
  

Funding options to bridge the gap

• Invoice finance: Releasing cash against staged invoices raised to clients.

• Short-term loans: To cover gaps until retention or milestone payments are received.

• Project finance: Tailored facilities that match construction cash flow cycles.

How Novuna Business Cash Flow can help

We work with construction firms to release funds tied up in retention and staged payments. Whether you need to unlock unpaid invoices, fund supplier costs, or secure a short-term facility, we’ll compare the market and make sure you get the right deal to keep your projects on track.