Why contractual retentions matter for liquidity

In B2B projects — construction, plant engineering, IT, technical consulting or industrial supplies — it is common for the client to withhold a portion of the consideration until work is completed, formally accepted or the warranty period expires. In Switzerland this mechanism is known as Rückbehalt (contractual retention) and must not be confused with the exception for non-performance (Leistungsverweigerungsrecht, CO art. 82) or the right of retention over movable property (CO art. 89 et seq.).

For an SME supplier, a 5–10% retention on a CHF 200'000 project means CHF 10'000–20'000 in blocked cash for months, sometimes years. For the client, the retention is a contractual guarantee instrument that reduces exposure to defects, but it creates deferred payment obligations and a need for precise tracking.

This guide explains how to negotiate, monitor and account for contractual retentions in compliance with Swiss law and SME accounting standards, with practical references to managing them in Accountex.

What contractual retentions are in Swiss B2B

A contractual retention is a clause under which one party withholds a percentage of the agreed price as security for proper performance. The legal basis is the contract itself (CO, art. 1 et seq.), supplemented — in the construction sector — by the SIA general conditions or similar terms agreed between the parties.

Supplier side (creditor)

The retention does not reduce the agreed consideration: the receivable from the client remains equal to the invoiced amount, but a portion is paid at a later date, under the conditions set out in the contract.

The main risk is delayed collection and, in extreme cases, dispute over release due to defects or failure to meet formal requirements (acceptance minutes, commissioning, certificates).

Client side (debtor)

The client withholds the portion as security, but remains obliged to pay the full amount once the release conditions are met. The retention is neither an extra discount nor deferred revenue.

It must be tracked separately from ordinary payables to the supplier, with documented deadlines and conditions to avoid disputes and default interest.

Contractual retention, right of retention and bank guarantee

Three instruments often confused in B2B negotiations have different legal natures and accounting impacts:

Instrument	Legal basis	Cash effect	Typical accounting treatment
Contractual retention (Rückbehalt)	Contractual clause — often SIA 118 in construction	Portion of consideration withheld until release	Trade receivables / payables with dedicated sub-account
Exception for non-performance (Leistungsverweigerungsrecht)	CO art. 82 (synallagmatic contracts); CO art. 367 et seq. (Werkvertrag)	Legitimate suspension of payment until counter-performance is fulfilled or disputed	Disputed liability — case-by-case assessment, possible receivable write-down
Bank guarantee / bond	Contract with credit institution or insurer	Bank fees; no direct blocking of consideration	Off-balance-sheet commitment or transit account; financial costs in income statement
Replacement with ten-year liability insurance	Contractual agreement — common on major projects	Periodic insurance premium instead of blocked cash	Insurance cost allocated to the project

In negotiations, clarifying from the quotation stage which instrument applies avoids double burdens (retention + bank guarantee) and accounting disputes at project close-out.

Percentages, amounts and typical clauses

There is no mandatory legal percentage valid for all B2B contracts: the retention is freely agreed, subject to general conditions incorporated into the contract. In Swiss practice, the following benchmarks apply:

Construction and plant engineering

SIA 118 conditions typically provide for a 10% retention on the consideration (with reductions and caps set out in the standard), released progressively after provisional acceptance and finally upon fulfilment of contractual release conditions. The Rügefrist for defects is 2 years from acceptance; the limitation period for defect claims is 5 years (CO art. 371).

B2B services and industrial supplies

Retentions of 5% to 10%, linked to commissioning, UAT (User Acceptance Test) acceptance or contractual milestones. In IT consulting it is common to tie release to the post-go-live stabilisation period (30–90 days).

Elements to verify in the contract

Percentage and calculation base (gross or net of VAT)
Partial release at intermediate milestones, if applicable
Formal release conditions (minutes, certificate, absence of reservations)
Default interest on delayed release (CO art. 104)
Option to replace retention with a bank guarantee

Impact on cash and financial planning

Contractual retention reduces effective liquidity without reducing accounting revenue. An SME with multiple ongoing projects can accumulate significant retentions:

Project	Gross revenue	10% retention	Collected immediately	Blocked cash
Office renovation	CHF 85'000	CHF 8'500	CHF 76'500	CHF 8'500
HVAC installation	CHF 120'000	CHF 12'000	CHF 108'000	CHF 12'000
ERP software project	CHF 45'000	CHF 2'250 (5%)	CHF 42'750	CHF 2'250
Total	CHF 250'000	CHF 22'750	CHF 227'250	CHF 22'750

For the supplier

Include retention in working capital requirements
Negotiate partial release at milestones to reduce exposure
Monitor warranty deadlines and send documented reminders
Consider exchanging retention for a bank guarantee if costs are lower than financing needs

For the client

Plan future release outflows in the cash budget
Document reservations and disputes to avoid improper early payments
Do not withhold beyond the contract: risk of default interest and damage to the commercial relationship
Align the project team and accounting on release dates

Deadlines, release and operational management

Retention release follows an operational process that should be tracked with the same precision as an overdue invoice:

1

Completion and acceptance

Prepare provisional and final acceptance minutes. In construction, provisional acceptance starts the warranty period; any reservations must be listed in writing within the contractual deadlines.

2

Warranty period

During the warranty period the client may dispute defects. The supplier must retain documentation of corrective work. A substantiated dispute may justify extending release, but not indefinitely.

3

Release request

The supplier sends a formal request with contractual reference, remaining amount and payment details. Attach defect-free certificates or commissioning documents where required.

4

Payment and accounting close-out

On collection or payment, close the retention sub-account and update the project status. Retain documentation for at least ten years (statutory accounting retention obligation, CO art. 958f).

In case of unjustified delay in release, the creditor may claim default interest at the statutory rate (CO art. 104: currently 5% per annum) and, if necessary, legal action to enforce the contract.

Accounting in compliance with Swiss standards

Under the accrual principle (Swiss GAAP FER for SMEs), revenue is recorded when the service has been rendered and the receivable is due — regardless of retention. Retention affects cash flow, not revenue recognition.

Transaction	Supplier — entry	Client — entry
Invoice issued CHF 100'000 (excl. VAT), 10% retention	Debit: Receivables CHF 100'000 — Credit: Revenue CHF 100'000 Of which CHF 10'000 classified as retention (sub-account)	Debit: Expense / investment CHF 100'000 — Credit: Payables CHF 100'000 Of which CHF 10'000 as retention payable (sub-account)
Partial collection CHF 90'000	Debit: Bank CHF 90'000 — Credit: Receivables CHF 90'000	Debit: Payables CHF 90'000 — Credit: Bank CHF 90'000
Retention release CHF 10'000	Debit: Bank CHF 10'000 — Credit: Receivables (retention) CHF 10'000	Debit: Payables (retention) CHF 10'000 — Credit: Bank CHF 10'000

VAT (MWST)

Value added tax applies to the full agreed consideration. Under the «agreed consideration» method (MWSTG art. 39 and 40), the VAT obligation generally arises upon invoicing the total amount, regardless of contractual retention: the invoice must include the full consideration (VAT calculated on the agreed base).

Balance sheet and write-downs

Retention receivables remain active until collected. If release is disputed without justification or the client is in financial difficulty, consider a specific write-down (Swiss GAAP FER: correction of value of receivables). Receivables with maturity beyond 12 months may require short-term/long-term classification.

Operational checklist for SMEs and fiduciaries

✓Verify in the quotation whether retention is provided for, the percentage and release conditions
✓Create dedicated accounting sub-accounts (e.g. 1109 Receivables — retentions / 2009 Payables — retentions)
✓Link each retention to a project or cost centre for reporting
✓Set automatic reminders for warranty and release deadlines
✓Periodically reconcile open retentions with bank statements and site documents
✓Include pending retentions in the cash flow forecast report
✓Document disputes and reservations to protect against litigation
✓At year-end, extract the list of open retentions for the balance sheet notes

Managing retentions with Accountex

Accountex lets you track contractual retentions without relying on parallel spreadsheets. When issuing or recording an invoice, you can split the amount between the collectable portion and the retention portion, linking both to the project and the client.

The deadline register highlights retentions awaiting release, while receivables and cash flow forecast reports show the impact of blocked cash on working capital. On collection of the release, the entry automatically closes the remaining balance on the retention sub-account, maintaining traceability for internal or statutory audit.

For fiduciaries assisting multiple clients, the view by client and by project simplifies periodic reviews and balance sheet preparation, reducing the risk of forgotten receivables or unrecorded payables.

Conclusion

Contractual retentions are a legitimate and widespread instrument in Swiss B2B projects, but they have a concrete impact on liquidity and require accounting discipline. Distinguishing contractual retention, right of retention and bank guarantees, negotiating clear conditions and tracking each portion with dedicated sub-accounts protects margins and commercial relationships.

With structured management — from the contractual clause to accounting close-out — SMEs can turn a cash constraint into a predictable process, compliant with Swiss accounting standards and under control.