Can invoice finance cover retentions held back by a construction or contracting client?
Retentions are amounts withheld by a customer until project completion or a defects period expires, and most mainstream invoice finance lenders exclude them from the eligible ledger because the debt is not yet unconditionally due. Some specialist construction finance providers will fund retentions under a separate retention funding line once the practical completion certificate has been issued. It is important to disclose any retentions clearly when setting up a facility, as undisclosed retentions can lead to an overdrawn position on your account.
What this means for your business
In UK construction and contracting, retentions are sums that a customer withholds from each payment, typically between three and five per cent of the contract value, until practical completion has been certified and any defects liability period has passed. Because this money is not yet unconditionally owed to you, most standard invoice finance facilities will not advance funds against it. This means that if your sales ledger contains a significant proportion of retention balances, your available funding will be lower than the face value of your invoices suggests. Understanding how your lender treats retentions before you draw down is essential, as it directly affects your working capital position and your ability to forecast cash flow accurately across the life of a construction project.
Key points
- Most mainstream invoice finance lenders in the UK class retentions as ineligible debts because they are contingent on future events such as project completion or the expiry of a defects period.
- Specialist construction finance providers may offer a dedicated retention funding line, which can release cash against certified retentions once a practical completion certificate has been issued.
- Retentions must be disclosed clearly to your lender when you set up a facility, as failing to do so can cause your account to become overdrawn if those balances are inadvertently included in your funding.
- The JCT and NEC contract suites, which are commonly used in UK construction, typically define the retention release mechanism, and lenders will want to understand these terms before agreeing to fund.
- If retentions form a large part of your debtor book, it is worth seeking a facility specifically structured for the construction sector rather than applying for a standard invoice discounting or factoring product.
Common pitfalls
A common mistake is assuming that all invoiced amounts will be funded at the same advance rate without checking whether retentions have been stripped out. If you upload a sales ledger that includes retention balances and your lender later identifies them as ineligible, the adjustment can create an unexpected overdrawn position, leaving you liable to repay funds immediately. Some businesses also forget to track when retentions become due and released, missing the opportunity to draw down against them once practical completion has been certified. Always review your facility agreement carefully to understand how retention lines are treated, and communicate any changes in your contract structure to your lender promptly.
Related questions
When does a retention become eligible for invoice finance funding?
A retention typically becomes eligible once it is unconditionally due, which usually occurs after a practical completion certificate has been issued and any agreed defects liability period has expired. Specialist construction finance providers may advance funds at this point under a separate retention funding line. You should confirm the exact trigger with your lender, as criteria can vary between facilities.
Will a standard invoice discounting facility work for a construction business with high retention levels?
A standard invoice discounting facility may be less effective for construction businesses where retentions represent a significant share of the ledger, because those balances will typically be excluded from the eligible debt calculation. This reduces the funding available relative to total invoiced revenue, which can distort your cash flow planning. A facility designed specifically for the construction sector is usually a more suitable option in these circumstances.
Do I need to tell my invoice finance lender about retentions even if I am not asking them to fund those amounts?
Yes, full disclosure of retentions is essential regardless of whether you intend to seek funding against them. If retention balances appear on your sales ledger without being flagged, the lender may include them in the funding calculation in error, which can lead to an overdrawn position when the discrepancy is identified. Most facility agreements require you to report the composition of your debtor book accurately and on an ongoing basis.
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: 5 June 2026