Introduction

In Malaysia's construction sector, it's customary for clients to withhold a portion of payment—known as payment retention—until project completion. This practice ensures quality assurance and contractual compliance. Zoho Books' Payment Retention feature streamlines this process, offering construction businesses an efficient way to manage retained amounts within their accounting system.

🇲🇾 Scenario: Payment Retention in a Malaysian Construction Project

Ahmad, the proprietor of Ahmad Bina Sdn Bhd, secures a contract with Tan Sri Lim, a prominent property developer, to construct a residential condominium in Petaling Jaya, Selangor.

• Total Contract Value: RM4,500,000

• Retention Rate: 10% (RM450,000)

• Initial Payment: RM4,050,000

In line with standard Malaysian construction practices, Tan Sri Lim retains 10% of the contract sum as a safeguard to ensure the project's completion and the rectification of any defects.

Upon the project's completion, the retention sum is released in two stages:

1. First Moiety (50%): RM225,000 released upon the issuance of the Certificate of Practical Completion (CPC).

2. Second Moiety (50%): RM225,000 released after the Defects Liability Period (DLP) concludes and the Certificate of Making Good Defects (CMGD) is issued. 

Ahmad efficiently records these transactions using Zoho Books' Payment Retention feature, ensuring accurate financial tracking and compliance with local industry standards.

Enabling Payment Retention in Zoho Books

To activate the Payment Retention feature:

1. Navigate to Settings > Preferences > General.

2. Scroll to Payment Retention and toggle it on.

3. In the pop-up:

   • Retention Name: Assign a name.

   • Rate (%): Specify the agreed-upon retention percentage.

   • Description: Optional notes.

   • Receivable Account: Select an account to track retention receivables. Defaults to "Retention Receivable" if none is chosen.

   • Payable Account: Select an account to track retention payables. Defaults to "Retention Payable" if none is chosen.

4. Click Save and Enable.
   
   
   

Configuring Retention in Invoices

To apply retention to an invoice:

1. Go to Sales > Invoices.

2. Create a new invoice or edit an existing one.

3. Click Configure Retention below the total.

4. Select the appropriate retention from the dropdown.

5. Zoho Books will calculate the retention amount from the subtotal (excluding tax) and display the balance due.

6. Click Save and Continue.
   
   
   
   
   

Recording Retention Payments

Once the retention amount is due, record it using one of the following methods:

Option 1: Create a Retention Claim Invoice

1. Go to Sales > Invoices.

2. Select the invoice associated with the retention.

3. Click the dropdown next to Retention Summary and choose Create Claim Invoice.

4. A new invoice with pre-filled retention details will appear.

5. To add more retentions, click Add Retention Claim below the item table.

6. Select the desired retentions and click Add as Line Item.

7. Click Save as Draft or Save and Send.
   
   

Option 2: Record via Manual Journal

1. Navigate to Accountant > Manual Journals.

2. Click + New Journal.

3. Enter the necessary details, using the invoice number in the Reference# field for tracking.

4. Credit the retention account and debit the cash or bank account with the appropriate amounts.

5. Click Save and Publish or Save as Draft.

Managing Retentions

• Edit Retention:

  1. Go to Sales > Invoices.

  2. Select the invoice and click Edit.

  3. In the Retention Summary section, click Configure.

  4. Adjust the retention rate or amount as needed.

  5. Click Save and Continue, then Save.

• Delete Retention:

  1. Navigate to Settings > Invoices.

  2. Scroll to the Payment Retention section.

  3. Click the delete icon next to the retention rate to remove.

  4. Confirm the deletion in the pop-up.

• Disable Payment Retention:

  1. Go to Settings > Invoices.

  2. Scroll to Payment Retention and toggle it off.

  3. Confirm the action in the pop-up.

Benefits for Malaysia's Construction Industry

• Alignment with Industry Practices: Reflects common contractual terms in Malaysia, where retention percentages are standard.

• Enhanced Financial Management: Provides clear tracking of withheld amounts, aiding in cash flow planning and financial forecasting.

• Improved Compliance and Transparency: Ensures all retention-related transactions are documented, supporting audit readiness and stakeholder trust.

• Integration with Project Management: When used alongside Zoho Projects, it offers a cohesive view of project progress and associated financials.

Conclusion

Zoho Books' Payment Retention feature offers Malaysian construction businesses a robust tool to manage retained amounts efficiently. By integrating this feature into your accounting processes, you can ensure compliance with industry standards, maintain financial clarity, and foster stronger client relationships.

For further assistance or to explore more features, drop us an email at connect@ooroboros.com or contact +60124451805