Holdbacks and the Ontario Construction Act.
Holdbacks are where a lot of contractor cash goes to hide. Handle them well and you protect both your lien rights and your bank balance.
Retained to secure lien rights down the chain.
Under Ontario's Construction Act, a 10% holdback is retained on payments to secure lien rights. You hold back from your subs. Your customers hold back from you. Tracked properly, it is a manageable timing issue. Ignored, it is a cash-flow surprise and a compliance risk.
Separate accounts and forecasted releases.
- Book holdback receivable and payable in separate accounts, never buried in regular AR or AP.
- Build the release timing into your cash-flow forecast.
- Use prompt-payment timelines, a proper invoice then 28 days, as leverage to get paid on time.
Let the system produce it.
A properly configured ServiceTitan or Procore feed makes holdback and WIP fall out of the system instead of a spreadsheet. That is the whole point of the systems work. See the related WIP and bonding guide.
Holdbacks strangling your cash flow?
The $750 plus HST Diagnostic Audit maps your releases and where the cash is trapped.
General information for Ontario businesses, current at the time of writing. Not tax, legal or accounting advice. Confirm your situation with a professional. Steel City CFO can help.