Payment Retention

In many businesses, customers retain a certain percentage of the total invoice amount and pay it later. This ensures the commitment and loyalty of their key partners like manufacturers, suppliers, or dealers.

In Zoho Books, you can enable payment retention and associate a rate with it. A portion of the total invoice amount will be set aside based on the retention percentage. Upon successfully fulfilling the contract terms, your customer will pay the retention amount as specified in the agreement. This can be further recorded through an invoice or a manual journal.

Scenario: Aaron, the owner of a construction firm, secures a contract with Hugh for a residential tower project. The total cost of the construction is $4,500,000. Hugh retains 10% ($450,000) and makes an upfront payment of $4,050,000. He pays the retention amount upon completion of the project. Aaron then easily records this amount in Zoho Books.

Learn more about how payment retention works in Zoho Books below.

IN THIS PAGE…

Enable Payment Retention

To enable payment retention in Zoho Books:

Go to Settings.
Select General under Preferences.
Scroll down to Payment Retention and slide the toggle to enable it.
In the Enable Retention pop-up, enter the required details:

Fields	Description
Retention Name	Enter the name of the retention.
Rate %	The percentage that you and your customer have mutually agreed upon to be withheld.
Description	You can provide a description for the retention if required.
Receivable Account	Select the account under which the retention receivables will be tracked. Note: If no account is selected for the retention, it will be tracked under the Retention Receivable account by default.
Payable Account	Select the account under which the retention payables will be tracked. Note: If no account is selected for the retention rate, it will be tracked under the Retention Payable account by default.

Click Save and Enable.

The Payment Retention feature will be enabled.

Configure Payment Retention in Invoices

You can configure the retention amount while you create or edit an invoice. Here’s how:

Go to Sales on the left sidebar and select Invoices.
Click + New in the top right corner and create a new invoice. Or go to an existing invoice and click Edit.
Click Configure Retention below the Total. The Configure Retention pop-up will appear.
Associate a retention from the drop-down. Zoho Books will automatically calculate the retention amount from the sub total (excluding tax) and display the balance due.
Click Save and Continue.

Payment retention will be configured in the invoice. Similarly, you can also configure payment retention for bills.

Record Payment Retention

Later, when you receive the retention amount from the customer, you can record it in a couple of ways in Zoho Books.

Create a Retention Claim Invoice

Before recording the payment, you must send your customer a retention claim invoice. To do this,

Go to Sales on the left sidebar and select Invoices.
Select the invoice for which you want to record the retention payment.
On the invoice’s Details page, click the dropdown next to Retention Summary. The retentions associated with that particular invoice will be listed.
Click Create Claim Invoice, a new invoice page with pre-filled retention details will appear.
To add additional retentions to the same invoice, click Add Retention Claim below the Item Table.
In the Select Retention pop-up, select the retentions you’d like to claim with this invoice.
Click Add as Line Item.
Click Save as Draft to send it to the customer later, or click Save and Send to send it immediately.

You can then record the payment for this invoice. Learn more about recording an invoice payment.

Create a Manual Journal for the Retention Amount

You can also record the retention amount received by creating manual journals.

To do so:

Go to Accountant on the left sidebar and select Manual Journals.
Click + New Journal.
Fill in the necessary details.

Pro Tip: You can add the invoice number in the Reference# field to track which invoice the retention belongs to.

Select the retention account as the Credit and the cash or bank account as the Debit account and enter the amounts.
Once you enter these details, click Save and Publish or Save as Draft to publish it later.

The published journal indicates that the retention amount withheld by the customer has been paid. Learn more about manual journals in Zoho Books.

Other Functions in Payment Retention

Edit Retention

To edit the retention after associating it to an invoice:

Go to Sales on the left sidebar and select Invoices.
Select the respective invoice for which you want to edit the retention.
Click Edit at the top of the invoice’s Details page.
Click Configure in the Retention Summary section.
In the Configure Retention pop-up:
- Select the desired retention rate or edit the amount to make the necessary changes.
- Click Save and Continue.
Click Save.

Delete Retention

You can delete a retention if you no longer use it.

To delete a retention:

Go to Settings.
Select Invoices under Sales.
Scroll down to the Payment Retention section. Click the Delete icon next to the retention rate you want to delete.
Click Delete in the pop-up that follows to confirm the delete action.

The retention will be deleted.