In banking you will come across customers who are undertaking construction contracts. While these contractors receive payment from their employers certain percentage of payment will be retained and generally it will not exceed ten percentage that retained portion is called as retention money but problem with retention money is it is going to affect cash flows or liquidity of the contractor so what is the solution? Whether employer will compromise retention money? Answer is NO. employer will not compromise retention money because once the contract is completed and if defect is identified then that defect will be either adjusted against retention money or contractor have to rectify the defect to get back retention money.
That’s the very objective of retaining portion of payment - so what is alternative option? In most of the cases, Employer will accept guarantee for retention money and it will be equal to retention money in general. This will ease liquidity in the business and when this retention money guarantee will expire? It expires when the project is completed to the satisfaction of the employer - but ofcourse, it will be substituted with maintenance bond of guarantee for some further period.