How do I estimate facility size for retentions?

Start with the retention schedule by job, then model releases inside a simple cash flow forecast so the limit matches the gap (not your ego).

When is a line of credit best for retentions?

When the gap repeats and you can enforce resets on release dates. If you can’t, you risk covenant pressure later because the balance never comes down.

When is working capital better than a LOC?

When you’ve got a defined squeeze with a finish line (mobilisation, hiring burst, staged ramp). It’s cleaner when the issue is short-term operating expense pressure, not an ongoing structural gap.

When does invoice finance make sense in construction?

When the bottleneck is invoice speed (not workload). If receivables grow faster than cash, invoice-based funding can match the rhythm.

If I trade through a company or trust, what might I be asked to sign?

It’s common to be asked for personal support, especially if the trading entity is a trust. The simplest protection is conservative sizing plus a clear reset trigger.

Retentions & Defects Liability: The Construction Cashflow Trap (2026)

18 Dec

Written By Nick Lim

Construction retentions cashflow for contractors – Switchboard Finance

🏗️ Construction · Retentions & DLP · Tradie Hub · 2026

Retentions & Defects Liability: The Construction Cashflow Trap (2026)

Retentions are money you’ve earned but can’t touch yet — so Cashflow gets squeezed even when the schedule is full.

The pain shows up fast: wages, suppliers, and PAYG still run on time, while retention releases drift.

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1) Where the cash actually disappears

Retentions sit inside the job’s Trade Terms: you do the work, you invoice, and a slice is held back until completion and the defects period clears.

If you’re registered for GST, the timing mismatch can feel even sharper — you’re managing obligations on a calendar, while releases move on someone else’s timeline.

Stage	What usually happens	Cash impact	Best first move
Mid-project	Retention stacks across multiple claims	Always “busy but tight”	List retentions by job + expected release
Practical completion	Completion hold + admin drift	Buffer still doesn’t return	Set a reset date tied to releases
Defects period	Releases are slower than expected	Bridge becomes “forever”	Fix structure (don’t just raise the limit)

Real-life example: A subcontractor has retentions held across 7 sites. Each job is “fine” alone, but combined withheld cash equals multiple payroll cycles — that’s when the gap needs to be priced and structured properly.

2) Pick the bridge (and keep assets separate)

Retentions are a timing gap — so your tool should behave like a bridge with a reset, not a permanent top-up.

If you’re also funding new gear (a classic CAPEX move), keep that in the asset lane. For the bigger picture, see Tradie Finance Australia.

Repeatable gap across jobs: Business Line of Credit + enforce resets.
Defined squeeze with an end date: Working Capital Loans (tight purpose, clear finish).
Slow-paying invoices are the real bottleneck: Invoice Finance (funding follows receivables).
Buying gear to deliver work: Low Doc Asset Finance (separate to the buffer).

Real-life example: A civil operator started with a LOC to smooth retention timing. Once the real issue proved to be 45–60 day invoice cycles, they moved to invoice finance so the facility rose and fell with invoices.

3) The approvals-ready file (what speeds it up)

Faster approvals come from a simple story: retention schedule, a reset trigger, and clean docs (no essays, no mystery).

If you trade through a Pty Ltd, expect lenders to want clarity on who controls the cash and how the reset will be enforced. For business structure basics, start at asic.gov.au.

Item	Why it matters	What “good” looks like	Common mistake
Retention schedule (by job)	Sizes the gap + timing	Jobs + amounts + release windows	Only totals (no timing)
Recent bank statements	Shows the real cash rhythm	Normal weeks + tight weeks	Only sending “good months”
Reset plan	Proves it won’t become permanent	Release → reduce balance (date-based)	No trigger / no discipline
Separation of spend	Stops buffers funding assets	Assets funded separately (if needed)	Mixing “gear” + “gap” together

Real-life example: A contractor got a faster “yes” after splitting the request: asset finance for the machine, and a separate cashflow facility sized only to retentions — with a written reset tied to release dates.

Summary

Retentions + defects periods are a timing gap. The win isn’t “more limit” — it’s sizing the gap properly and enforcing a reset so short-term support doesn’t turn into permanent debt.

Next steps: Business Loans · Line of Credit · Working Capital · Invoice Finance · Tradie Hub.

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