By: Rich Uphus | May 23, 2023
Eliminating Today’s Retainage Management Challenges with FullClarity
Construction companies constantly look for ways to improve operations and streamline processes. One area that often falls victim to inefficiencies is retainage management. Retainage is a portion of the contractor or supplier's payment that the construction project owner holds back until the project is completed and accepted. The retainage percentage is typically 5-10% of the contract value. It is a common practice in the construction industry to ensure that the work is done to the owner's satisfaction.
Unfortunately, managing retainage with manual processes can be challenging and time-consuming for construction companies, especially those with multiple projects. According to a survey by the Associated General Contractors of America, more than half of construction companies struggle with the manual tracking of retainage, and nearly a third reported that it takes 2-3 days to reconcile retainage amounts (AGC, 2019). This can lead to delays in receiving payment and increase the risk of financial loss due to incorrect record-keeping. The following are some of the key challenges of manual retainage management:
- Increased Efficiency: One of the biggest challenges of manual retainage management is the lack of accuracy in tracking retainage balances. With manual processes, it's easy for retainage amounts to be recorded inaccurately, and it can be difficult to reconcile these amounts with the contract amounts. This can lead to significant financial losses for the construction company.
- Time-Consuming Processes: Manual retainage management requires significant time and effort, especially when reconciling retainage balances. Accounts Receivable (AR) staff often have to spend 2-3 days going through the accounts receivable to ensure that retainage numbers and account receivable balances are accurate. This is a time-consuming and often repetitive task, which can drain resources and reduce the company's efficiency.
- Lack of Transparency: Manual retainage management processes often lack transparency, leading to confusion and disputes. Without a clear record of retainage balances and payments, it can be difficult for construction companies to ensure that money is paid accurately and on time. This can also lead to disputes with owners, which can be costly and time-consuming.
- Increased Risk of Human Error: Manual retainage management processes are prone to human error, which can seriously affect construction companies. For example, manual calculations and data entry can result in mistakes that can go unnoticed for months, leading to significant financial losses.
Despite these challenges, the good news is that construction companies can transition to an automated process in the cloud to manage retainage more effectively. Automated processes provide many benefits over manual processes, including:
- Increased efficiency: Automated retainage management software eliminates the need for manual data entry, reducing the risk of errors and increasing accuracy. This results in reduced time and effort for AR staff and frees up resources for other essential tasks.
- Real-time visibility: Automated retainage management provides real-time visibility into the amounts due and payable. This makes tracking payments easier and ensures they are made on time, reducing the risk of financial losses.
- Improved accuracy: Automated processes are more accurate than manual ones, reducing the risk of incorrect calculations or mismanagement of funds. This increased accuracy helps companies make informed decisions and maintain a clear financial picture.
- Reduced risk of fraud: Automated processes are more secure than manual ones, reducing the risk of fraud and protecting the funds held in retainage. This added security helps companies protect their finances and maintain trust with their stakeholders.
A study by the Construction Financial Management Association found that construction companies that utilized automated retainage management experienced a 50% reduction in payment processing time and a 25% reduction in payment errors. The study also found a 15% reduction in the risk of fraud compared to those using manual processes.
FullClarity Retainage for NetSuite
FullClarity Retainage for NetSuite provides an automated cloud solution for today's challenges when managing retainage. With its seamless integration into NetSuite, construction companies can benefit from its automation and real-time visibility to streamline retainage tracking and reconciliation, reduce the risk of manual errors, improve cash flow, and maintain good relationships with contractors and subcontractors. The result is a more efficient, accurate, and streamlined process that helps companies stay ahead of the curve. FullClarity Retainage for NetSuite is the solution construction companies have been searching for to overcome the limitations of manual processes and drive greater efficiency.