Progress claims and retentions in Xero: how to invoice and chase them

Xero has no native progress-claim or retention feature. You invoice each claim as a normal Xero invoice, hold the retention with a separate line and a tracking category, and raise the retention invoice as a draft with its due date set to the release date. That due date is what your reminders, statements, and late fees key off when the money falls due.

This guide is written for Australian builders and subcontractors on Xero. It covers what Xero's own progress invoice and deposit request do, what a retention is, the ledger workaround, the construction add-ons that fill the gap, the Security of Payment clocks in three states, and how the retention invoice gets followed up at release.

How to manage progress claims and retentions in Xero

Raise each progress claim as a standard Xero invoice, show the retention held as a negative line, tag every line with a project tracking category, and keep one draft retention invoice per project dated to the release date.

Xero has no progress-claim or retention feature. An open idea on Xero's product board, "Sales Invoices - Ability to specify a % of invoice held on retention", asks for one. Corecon's Xero integration docs state that Xero has no retainage function and describe the same workaround this guide uses: a draft invoice approved when retention falls due, with Tracking Categories per project. The full method takes six steps.

1. Create a tracking category called Project and add each job as an option. Every claim line, retention line, and cost gets tagged, so the project's retention balance is one report filter away.
2. Set up two items. "Retention held" as a negative sales line coded to a retention liability or clearing account, and "Retention released" as a positive line coded to the same account. Ask your accountant which account type to use for held retention.
3. Raise each claim as a normal invoice. Work completed this period as positive lines, the retention percentage as one negative "Retention held" line. The invoice total is what the client should pay against this claim.
4. Raise the retention invoice as a draft on day one. One "Retention released" line for the amount you expect to hold across the project. Set its due date to the contractual release date. Leave it as a draft so nothing is sent early.
5. Adjust the draft as the project runs. Each new claim adds to the held amount; update the draft's line to match. At practical completion, split it if the contract releases half then and half after the defects liability period.
6. Approve and send at release. When the release date arrives, approve the draft. It is now a live receivable with a due date, and it enters the client's aged payables like any other invoice.

Worked example: a $250,000 contract billed in ten equal claims with 5% retention carries a -$1,250 "Retention held" line on each claim. The draft retention invoice is $12,500. If the contract releases half at practical completion, split the draft into $6,250 due at practical completion and $6,250 due at the end of the defects liability period.

What Xero's progress invoice and deposit request do and do not do

Xero's native tools cover a deposit or a lump-sum prepayment on a single invoice. They do not track a contract sum, a percentage complete, or a retention held across many invoices.

Two native features get mistaken for progress-claim support; both stop short of a construction claim. The deposit request adds a percentage or fixed deposit to an invoice. It requires Stripe, is recorded as a part payment, and the deposit is revenue that attracts tax. Xero Projects adds project-level deposit invoicing.

Xero Central pages relayed via search snippets in September 2026; re-check the deposit article wording before relying on it.

What a retention is, and why it is the invoice most likely to be forgotten

A retention is a percentage of each progress claim the client holds back as security for defects, released in tranches after practical completion. It is invoiced last, often months after the last person on site has moved on.

The UK industry norm is 5% of each claim, released in two halves: half at practical completion, the balance at the end of the defects liability period. Australian contracts set their own percentage and cap; check the contract and the standard form it is based on. Build UK has campaigned to cap retentions at 1.5% and eventually zero.

Across the Tasman, New Zealand's Construction Contracts (Retention Money) Amendment Act 2023 deems retention money held on trust from 5 October 2023, in a separate account or complying instrument, reported at least every three months, with MBIE able to prosecute breaches. Australian retention trust rules vary by state and project value, so check the rules for your state before assuming any apply.

In most cases the retention goes unpaid because nobody raised the invoice, and only rarely because of a dispute. The monthly claim cycle is routine; the release date sits in a contract clause months away. A draft retention invoice dated to release is the cheapest insurance against that.

Construction apps for Xero progress claims and retentions

Three construction add-ons appear in the search results for progress claims and Xero: Payapps, Viabuild, and Gojee. Retention Track reconciles retention balances only. No evidence was found that any of them follow up the retention invoice.

No top-ranking page compares these tools with each other or with the native workaround. The table sets Retention Track, the one add-on with a Xero App Store listing checked for this page, beside Xero alone. Gojee and Payapps are added from their own documentation. Viabuild is left out until its retention scope is verified.

Sources: Gojee knowledge base, Payapps, Retention Track Xero App Store listing, as at September 2026.

The broader trade platforms tell the same story. Buildertrend, Procore, simPRO, Tradify, and Fergus all connect to Xero, and their own integration docs describe invoice, contact, cost-code, and payment sync only. None describes pushing a Security of Payment claim or retention-trust accounting into Xero. They move invoices; the claim logic stays in the trade tool.

Security of Payment timing in NSW, Victoria, and Queensland

Each state's Security of Payment Act fixes how fast a payment schedule must come back and how long the payer has to pay. Put these dates on the claim invoice's due date so Xero and any follow-up tool count from the right day.

Sources: NSW Government Security of Payment guidance; White & Case summary of the Victorian reforms; buildingindustryfairnessact.com.au. Business days where stated. Confirm against your contract and current legislation.

Two practical consequences follow. First, the invoice date on the claim should be the date the claim is served, because every clock runs from it. Second, set the due date to the Security of Payment payment date rather than your standard net 30 terms, so an overdue flag in Xero means what it says.

Beyond Security of Payment, the Australian Small Business and Family Enterprise Ombudsman's collection ladder applies to any unpaid claim: reminders, negotiation, a letter of demand, then an agency or the courts. NSW Local Court small claims run to $20,000 AUD, with filing fees of $179 for an individual or $358 for a corporation. The limitation period is six years.

How the retention invoice gets followed up at release

Set the retention invoice's due date in Xero to the contractual release date. Xero's own reminders, and any accounts receivable app connected to Xero, take that due date as day zero.

Xero's native reminders send up to five emails per organisation, three on by default, each a fixed number of days before or after the due date. They only fire on an invoice marked as sent, which is why the retention invoice stays a draft until release. Once sent, it joins the organisation-wide schedule. There is no separate schedule for retentions, no SMS, and no scheduled statement.

For most builders that is enough for the first reminder and too little for what follows. A retention released twelve months after the last site visit is exactly the invoice a client's accounts team queries, parks, or pays last. Paidnice runs everything off the same Xero due date, so nothing needs to be re-entered when the retention invoice is approved at release.

• Reminders and automatic statements key off the due date. The statement shows the retention alongside anything else the client owes, so it cannot be parked on its own.
• Invoice late fees and statement interest start from the due date. Where a contract or a migration means the fee clock should start on a different day, late-fee calculation start dates can be set.
• Construction clients get their own group. Clients with long defects periods sit in a separate group, so their reminder wording references the contract and the practical completion certificate rather than a generic overdue notice.
• Disputed claims stay out by reference. An invoice reference filter excludes any claim under formal dispute, so a contested variation does not drag the retention into the same escalation.

Late fees on a retention are leverage: a posted fee enters the client's aged payables and their payment run, which a reminder email never does. The rules for charging them are in the Australian late fees guide. Paidnice's Essentials plan is A$99 a month for up to 150 invoices and two team members, with Pro plans from A$139, pricing as at September 2026.

Where this fits with the rest of your terms

Progress claims and retentions are payment terms with statutory clocks attached. Write the release trigger, the release date, and the consequences of late release into the contract, then mirror the dates in Xero.

The clause should name the retention percentage, the cap, the release trigger (practical completion certificate, end of defects liability period), the number of days after each trigger the money is due, and the interest or fee payable if it is late. Templates and wording are in payment terms and conditions templates and examples of payment terms on invoices.

Australian small businesses on Xero waited an average of 22.9 days to be paid in the June 2026 quarter, 6.0 days past due, according to Xero Small Business Insights. Retentions sit outside that average because they are rarely invoiced on time. The fix is administrative, and it starts with a draft invoice and a date.

Written by

Denym Bird

Co-founder & CEO of Paidnice

Denym is a software entrepreneur and writes about accounts receivables management for small business.

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