A holdback is a portion of each progress payment withheld by the client until a defined period after project completion, a legal requirement under provincial construction lien legislation across Canada.
Provincial lien acts across Canada require that a percentage of each progress billing, typically 10 percent, be retained by the payer until the lien period has expired. The holdback protects subcontractors and suppliers by preserving a fund from which unpaid liens can be satisfied.
For contractors, the cash management implication is significant. Holdback balances accumulate across every active project simultaneously, and on large or long-duration jobs the total withheld can be material relative to the business’s operating cash position. A contractor who invoices well but does not track holdback release dates can become cash-constrained despite strong billings, a pattern that appears repeatedly in construction businesses that grow faster than their financial systems can keep up.
See also: Job Costing · Work in Progress (WIP) · Cash Flow ForecastConstruction cash flow has dynamics that general accounting practices were not built to manage. See how Wefinx approaches accounting for construction.