Financially sound construction businesses often rely on cash reserves to protect against emergencies, unpredictable economic conditions and the industry’s cash flow challenges. If your company regularly encounters the negative consequences of retainage, consider establishing a dedicated retainage reserve. It can provide financial relief when retainage payments are delayed or tied up in a prolonged dispute.

To get started:

• Open a bank account specifically for a retainage reserve. High-yield business checking accounts often work well because the accumulated funds will earn at least some interest. But shop around and see what works best.
• Sweep a defined percentage of revenue from each project into the account. If you already have a general cash reserve, consider transferring some of those funds into the retainage reserve to raise its balance more quickly.
• Set a goal for the desired reserve amount, so you’re not diverting funds indefinitely. Maintain the account carefully, replenishing it as necessary and safeguarding against fraud.