Can I Finance Retentions (Held-Back Money) on Construction Jobs?
Standard invoice finance doesn't cover retentions, you get advances on the gross invoice minus retention. However, some providers offer separate retention release facilities that advance against retentions once the defects liability period is near its end. Ask specifically.
Why This Matters
In UK construction, retentions are typically 3-5% of contract value held back for 6-12 months (sometimes 24 months on larger projects) after practical completion. For a £500,000 fit-out job, that's £25,000 tied up when you've already paid subcontractors and suppliers. Standard invoice finance advances 80-90% of the gross invoice value minus the retention, meaning on a £100,000 invoice with 5% retention held, you'd get £76,000-£85,500 (80-90% of £95,000), not of the full £100,000. That retention gap compounds across multiple jobs. A Sheffield shopfitting contractor running five concurrent projects could have £60,000-£100,000 locked in retentions at any time, directly impacting working capital. Specialist retention finance facilities address this by advancing 70-90% of retention amounts once you're past practical completion, typically 2-3 months before the defects liability period ends. This creates a secondary funding line that bridges the gap between job completion and final payment, critical for subcontractors in particular who face retention deductions from main contractors but must pay their own suppliers on standard 30-day terms. Understanding which invoice finance providers offer retention release as a bolt-on facility versus standalone product makes a material difference to cashflow planning on medium to large construction contracts.
Key Points
- Standard invoice finance advances 80-90% of invoice value excluding retentions. On a £100,000 invoice with 5% retention, you receive advance on £95,000 only (£76,000-£85,500).
- Retention release facilities typically advance 70-90% of held retentions 2-3 months before defects liability period ends, converting frozen retentions into working capital earlier.
- Close Brothers, Bibby Financial Services, Ultimate Finance and Skipton Business Finance offer specific retention finance products alongside their main invoice discounting facilities.
- Main contractors commonly hold 3% retention until end of defects period (6-12 months), then release half, with remaining 1.5% held until final certificate. Retention finance can bridge this entire timeline.
- Combined facility costs typically 1.5-3.5% monthly discount fee on invoice values plus 0.3-0.8% monthly on retention advances. On £500,000 annual retentions released early, total cost runs £4,500-£9,600 versus waiting 12 months.
- JCT contracts typically allow assignment of retentions with contractor consent. Check your contract terms before arranging retention finance, some NEC4 contracts explicitly prohibit assignment.
- Providers usually require minimum 12 months trading history in construction, satisfactory payment record from retention-holding clients, and evidence you've completed practical completion milestones before advancing against retentions.
Real-World Example
A Birmingham M&E subcontractor completes a £300,000 hospital installation in March. The main contractor (Kier) holds £9,000 retention (3%) until September (6-month defects period), then releases £4,500, holding final £4,500 until March next year. Across six similar jobs, £40,000 sits in retentions at any time.
They arrange retention finance through Close Brothers in May (4 months before first release). The facility advances 80% of retentions (£32,000 of the £40,000 frozen). Monthly cost is 0.6% on retention advances (£192/month). When Kier releases the actual retention in September onwards, the advance is repaid. Total finance cost over 4 months: £768. The £32,000 immediate liquidity allows them to take on two additional contracts without seeking additional working capital from directors.
Common Pitfalls
- Assuming all invoice finance providers offer retention release. Many standard facilities explicitly exclude retentions. Time Finance and Pulse Cashflow focus on pure invoice finance without retention modules, requiring separate arrangements.
- Not checking contract assignment clauses before arranging retention finance. Some main contractors (particularly on public sector NEC contracts) prohibit assignment of retentions without written consent, making the facility unworkable.
- Underestimating the cumulative cost. A 0.5% monthly retention finance fee sounds small but compounds to 6% annually. On £200,000 in rolling retentions held 8 months average, you're paying £4,800-£9,600 depending on provider versus waiting for natural release.
- Failing to account for practical completion delays. Retention finance providers typically require signed PC certificates before advancing. If handover slips from June to September, your expected retention advance delays three months, leaving a cashflow gap.
- Mixing retention finance with factoring on the same invoices without understanding advance mechanics. You receive 85% on the main invoice (£95,000), then 80% on the retention (£4,000) at different times, creating reconciliation complexity if you're not tracking carefully.
What to Do Next
- List your current retention holdings by client, amount, and expected release date. Calculate total value locked up and average holding period (typically 8-14 months in UK construction). If you have £30,000+ consistently frozen, retention finance may be worthwhile.
- Contact Close Brothers, Bibby Financial Services, or Ultimate Finance specifically requesting retention release facilities. Ask: what % of retentions will they advance, how many months before defects period end, monthly cost, and whether they require main contractor consent letters.
- Review your JCT/NEC contract terms for assignment clauses (typically Section 7 in JCT, Clause 24 in NEC4). If contracts prohibit assignment without consent, approach your main contractor clients for written permission before arranging the facility, framing it as cashflow management rather than financial distress.
Related Questions
Do I need separate approval from the main contractor to finance retentions?
Depends on your contract. JCT contracts generally permit assignment of debts (including retentions) unless specifically excluded. NEC4 contracts often require contractor consent for assignment. Most retention finance providers will ask you to notify the main contractor or obtain consent letter before advancing funds, even if not legally required, to ensure retentions are actually paid to the finance provider when released.
Can I use retention finance if I'm already factoring the main invoices?
Yes, retention finance typically works as a bolt-on to your existing invoice finance facility. The main invoices are factored at 80-90% of value excluding retentions, then the retention element is separately advanced at 70-90% once practical completion is certified. Bibby Financial Services and Ultimate Finance commonly structure combined facilities this way for construction clients. Ensure both facilities are with the same provider to avoid conflicting security interests over the same debtor.
What happens if the retention is never released due to defects or disputes?
The retention finance advance becomes your liability, not the provider's. If a £5,000 retention is disputed and the main contractor withholds payment due to remedial work, you must repay the £4,000 advanced (assuming 80% advance rate). Providers typically include recourse clauses requiring you to buy back non-paid retentions after 90-120 days beyond expected release date. This is why they require evidence of satisfactory job completion and client payment history before advancing.
Director, Market Invoice
Oliver leads Market Invoice's editorial and comparison research. With a background in UK commercial finance, he oversees provider analysis, rate verification, and industry reporting across all verticals.
Last reviewed: 9 April 2026