The same building project produces two completely different sets of books depending on which end of the contract chain you sit. The head contractor collects from the principal and pays a tier of subcontractors, holding their retentions and carrying the whole chain’s delivery risk; the subcontractor funds labour and materials weeks ahead of payment, watches 5 per cent of everything earned sit in someone else’s bank account, and lives or dies on paperwork discipline at every reference date. Both positions run on the same machinery, progress claims under security of payment legislation, retention ledgers, work-in-progress truth, but the machinery points in opposite directions. This guide works both seats: the claims cycle, retentions held versus owed, the two cashflow shapes, and the reporting each position needs if bookkeeping for trades and construction is going to run the business rather than merely record it after the fact.
Published: July 2026
Construction cashflow runs on progress claims: periodic claims for work completed, made from contractual reference dates, usually monthly, under the security of payment legislation every state maintains. The regime’s essentials are consistent even where details differ: a valid payment claim from a reference date, a payment schedule from the payer within a tight statutory window stating what will be paid and why any difference, and, if the schedule is absent, the payer generally becomes liable for the claimed amount, with fast-track adjudication available for disputes. Pay-when-paid clauses, the old device that pushed principal risk down the chain, are void under the legislation.
The accounting consequence is that the claim cycle is the revenue cycle. For both positions, the disciplines are identical in form: claim every reference date without exception, claim everything claimable, completed work measured accurately, approved variations, materials on site where the contract allows, and issue claims that comply with the legislation’s formalities, because a defective claim resets the clock a month. A subcontractor who skips a reference date because the month was busy has made an interest-free loan of a month’s work; a head contractor whose claim to the principal lags its subcontractors’ claims to it is funding the gap from its own account.
Take a mid-tier trade subcontractor turning over about $4.2 million a year across commercial fitouts. Average monthly claim value is $350,000. Miss one reference date while the site is “too busy,” and that $350,000 sits unclaimed for another month. At a commercial overdraft rate of 9 per cent, funding that month costs roughly $2,625 in interest alone, before you count wages already paid, materials already purchased, and the retention slice still sitting with the head contractor. Over a year, two casual misses is $5,000-plus of avoidable funding cost and a permanent cash buffer that never rebuilds itself. The fix is administrative, not heroic: a claims calendar, site measure cut-off two days before the reference date, and a claims pack that leaves on time every month.
The paired discipline is the payment schedule obligation running the other way. A head contractor receiving thirty subcontractor claims a month must respond to each within the statutory window or lose the right to dispute; that is an administrative machine, claims registered on arrival, assessed against site records, schedules issued on time, and businesses that run it informally acquire statutory debts by missed deadline. For a head contractor with $18 million of annual subcontract spend, even a 2 per cent rate of late or incomplete schedules creates avoidable disputes and adjudication exposure measured in six figures when a few claims land uncontested.
Retentions are the industry’s security deposit: commonly 10 per cent withheld from each progress payment until the retained sum reaches 5 per cent of the contract value, with half released at practical completion and half at the end of the defects liability period, often twelve months later.
On the head contractor’s books, retentions withheld from subcontractors are a liability, retention moneys payable, tracked per subcontractor per project with release dates and conditions. Two obligations attach. First, the ledger must be real: a head contractor that cannot state exactly what it holds, for whom, releasable when, will eventually pay twice or be adjudicated. Second, several jurisdictions now impose trust obligations, New South Wales requires retention money on covered projects to be held in trust accounts, and Queensland’s project and retention trust regime extends trust protection across covered contracts, meaning retained funds are not working capital, and treating them as such is not aggressive cashflow management but a statutory breach.
On the subcontractor’s books, the mirror entry is retentions receivable: money earned, invoiced and unpaid, sitting as an asset, per project, with expected release dates. The management failures here are legendary and expensive. Retentions forgotten are retentions donated: releases at practical completion and DLP end do not arrive automatically, they are claimed, and a subcontractor’s month-end pack should include a retention register aged by release date, with the two claim events diarised per project. The risk dimension matters too: retention held by a head contractor is an unsecured exposure to that contractor’s solvency, except where trust regimes protect it, so the register doubles as a counterparty risk report.
A subcontractor holding $180,000 of retentions across six builders is carrying a loan book and should read it like one. If $70,000 of that sits with a single head contractor whose payments have slowed from 30 to 55 days, the concentration risk is not abstract. Half of each retention often becomes claimable at practical completion; if three projects hit PC in the same quarter and nobody diarises the claims, $40,000 to $60,000 of earned cash can sit unclaimed for months while the business borrows to fund the next jobs. Active claiming at PC and DLP end is not admin fluff; it is collections on the largest unsecured asset many trade businesses own.
Here is the structural difference the accounts must make visible.
The subcontractor’s shape is negative first. Wages weekly, suppliers on 30 days, then a claim at the reference date, a schedule, and payment on the contract’s terms, so the business permanently funds four to eight weeks of its own delivery, plus the retention slice of everything, plus every day of claim slippage. The survival disciplines follow directly: claims maximised and on time, variations documented and priced before the work, done-but-unapproved variation work tracked as the at-risk asset it is, and a cash flow forecast built off the claims pipeline rather than the invoice ledger, because in this business the invoice is the end of the process, not the start.
The head contractor’s shape can be positive, and that is its own risk. Collecting from the principal on the head contract while paying subcontractors on their terms can produce a float, and disciplined operators manage it as timing, not income. The failure mode is the business that grows on subcontractors’ money, where the float funds overheads and the next project’s start-up, and one principal’s slow payment or one project’s dispute cascades down the chain. The controls: project-level cash reporting that separates the float from earnings, trust obligations honoured where they apply, and the recognition that every dollar of float is a dollar of liability with a subcontractor’s name on it.
Ask three questions at month end. First, how many weeks of labour and materials are you funding before cash lands, and has that number grown in the last six months? Second, what share of total current assets is retentions receivable (sub) or retentions payable (head), and can you name release dates for the largest balances? Third, if the next principal or head-contractor payment slips 30 days, which projects still meet payroll without the float? If you cannot answer all three from the books, the books are not yet construction books; they are a general ledger wearing a hard hat.
Both positions need the same underlying honesty: work in progress and claims reconciled to cost, per project, monthly. Costs to date plus recognised margin, less amounts claimed, produces either underclaims, earned but unclaimed, an asset and an urgency, or overclaims, claimed ahead of work, a liability and not profit. Head contractors carry the additional layer of subcontract cost commitments: the margin on a head contract is only real after the full subcontract letting is costed, and a project showing 22 per cent margin before the last two trades are let is showing a hope, not a number.
A head contractor has a $2.4 million commercial project. Costs to date plus recognised margin equal $1.1 million; claims certified total $980,000. That is a $120,000 underclaim: earned cash sitting outside the claims engine, often because variations were not packaged, measures were incomplete, or materials on site were left off the claim. Flip the numbers: costs plus margin $1.0 million, claims $1.15 million, and you have a $150,000 overclaim sitting as a liability. Treating overclaims as profit funds bonuses and overheads on money that still has to be earned, then surprises the cash forecast when later months “underperform” while work catches up. Project profitability only exists when WIP, claims and cost live on the same page.
The month-end pack that serves both seats: project profitability at true cost against tender, the claims register with every reference date’s status, the retention ledger (payable or receivable), variations approved, submitted and at-risk, and the cash forecast driven off the claims pipeline. That pack, produced monthly from books kept current weekly, is the difference between managing a contracting business and auditing one after the fact. Producing it, claims administration, retention registers, WIP truth, schedule deadlines met both directions, is precisely the standing engagement an outsourced finance team runs for contractors on both sides of the chain, often for less than the interest and unclaimed retentions a single messy year burns.
What is a progress claim and why does the reference date matter?
A periodic claim for work completed under the contract and security of payment legislation, made from the contractual reference date. Miss the date and the entitlement waits a month; claim defectively and the statutory protections may not attach. Claiming every reference date, completely and validly, is the first cashflow discipline in construction.
What happens if a payment schedule is not provided in time?
Under security of payment legislation, a payer who fails to issue a payment schedule within the statutory window generally becomes liable for the full claimed amount. For head contractors receiving many claims monthly, schedule administration is a statutory machine, not correspondence.
How do retentions work?
Typically 10 per cent is withheld from each payment until the retained total reaches 5 per cent of the contract sum, with half released at practical completion and half at the end of the defects liability period. The releases are claimed, not automatic, and both events belong on a diarised register per project.
How does a head contractor account for retentions held?
As a liability per subcontractor per project, with release conditions and dates, and, on covered projects in jurisdictions with trust regimes such as New South Wales and Queensland, held in trust rather than used as working capital. Retained money is a subcontractor’s money with conditions, and the ledger must be able to say so precisely.
How should a subcontractor track retentions receivable?
As an aged register of earned money by builder and project, with expected release dates, claimed actively at practical completion and DLP end, and read as a counterparty exposure report, since untrusted retentions are unsecured claims on each head contractor’s solvency.
Why are unapproved variations dangerous?
Because the cost is incurred now and the revenue only exists once approval lands. Variation work done on instruction but priced later is the classic margin killer at both levels: document, price and secure approval before the work wherever possible, and report the at-risk balance monthly where not.
What is an overclaim and is it profit?
Claiming ahead of work performed produces a liability, amounts received for work not yet done, not profit. The monthly WIP reconciliation, cost plus margin less claimed, keeps both overclaims and underclaims visible, and stops the P&L from following the claims schedule instead of the work.
Which position has the harder cashflow?
Structurally the subcontractor, who funds labour and materials weeks ahead of payment and lends the retention on top. The head contractor’s float looks easier but is borrowed from the chain below, and businesses that spend it as income convert one slow principal into a cascade. Both survive on the same thing: claims discipline and books current to the week.
How often should construction WIP be reconciled?
Monthly at minimum, weekly on large or distressed projects. The reconciliation is costs to date plus recognised margin less amounts claimed, producing underclaims or overclaims that management can act on while the site is still open.
Do trust regimes apply to every retention?
No. Coverage depends on jurisdiction, project value and contract type. New South Wales and Queensland impose trust obligations on defined classes of projects and contracts. Where trust rules apply, retained funds are not free working capital and the ledger must track them as such.
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We review and check this guide periodically. At the time of writing (July 2026), all information was current. Scale Suite is a registered BAS Agent, not a licensed tax advisor or financial advisor. This content is general information only and does not constitute professional tax, financial, or legal advice. Some details may change over time.
Scale Suite is a Sydney-based provider of outsourced finance and HR services for Australian SMEs. We deliver bookkeeping, financial reporting, payroll processing, fractional CFO support, recruitment, employee onboarding, people and culture support, and fractional HR oversight, all as a fully embedded team that works inside your business.
Employment Hero Gold Partner, CA-qualified, and Xero Certified, we replace fragmented finance and HR processes with one responsive, senior-level function at a fraction of the cost of full-time hires. We serve growing businesses across Sydney, Melbourne, Brisbane, and Perth, with packages starting from $1,500 per month and no lock-in contracts.
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