Managing Subcontractor Billing and Retention in Business Central

In construction, subcontractor management can make or break a project’s success. Between multiple contracts, progress claims, and retention holdbacks, it’s easy for billing errors and payment delays to snowball — leading to strained relationships and inaccurate job costs. 

That’s why Microsoft Dynamics 365 Business Central is becoming a go-to ERP system for contractors. It provides an integrated, automated way to manage subcontractor billing and retention, ensuring accuracy, compliance, and transparency across every project. 

Let’s explore how Business Central simplifies subcontractor billing, automates retention, and helps contractors stay on top of their financials. 

Why Subcontractor Billing and Retention Matter 

Every construction project relies on subcontractors — from electrical and plumbing to framing and finishing. But managing their payments can be complex because of: 

• Partial completions and progress claims 

• Retention holdbacks until project milestones 

• Varying contract terms and compliance requirements 

Without the right system, tracking these details manually in spreadsheets or emails can lead to:  

🚫 Missed retention releases  

🚫 Overpayments or underpayments  

🚫 Conflicts with subcontractors  

🚫 Inaccurate project cost reporting 

Business Central eliminates these risks by tying subcontractor data directly to each job card, giving contractors full visibility into costs, progress, and retention. 

1️⃣ Setting Up Subcontractor Contracts in Business Central 

Start by creating a Purchase Order (PO) linked to a specific job.  Each PO represents a subcontract agreement that includes: 

• Contract value 

• Retention percentage 

• Milestone or progress billing schedule 

• Compliance documentation (e.g., insurance, W-9s, etc.) 

💡 Pro Tip: Use Business Central’s Job Task Lines to map PO items to specific tasks or cost categories. This ensures accurate cost allocation and reporting for each phase of work. 

2️⃣ Tracking Subcontractor Progress and Invoicing 

Subcontractor billing often occurs as work progresses — not all at once.  With Business Central, you can easily: 

• Record partial progress billings based on the percentage of work completed. 

• Automatically apply retention holdbacks to each invoice. 

• Track what’s been billed, what’s paid, and what’s still pending — all from the job card. 

  
  

This eliminates manual spreadsheet tracking and ensures invoices always align with contract terms. 

💡 Example:  If a subcontractor submits a $100,000 progress invoice and retention is set at 10%, Business Central automatically withholds $10,000 and records the remaining $90,000 as payable. 

3️⃣ Managing Retention Hold and Release 

Retention protects contractors and clients by ensuring the subcontractor finishes work to the agreed quality and scope. But without automation, it’s easy to forget to release held amounts — or release them too early. 

In Business Central, you can: 

• Define retention rules per vendor or contract. 

• Schedule automatic release dates based on project milestones. 

• Generate reports showing all outstanding retention balances. 

  
  

💡 Pro Tip: Add reminders or job alerts in BC to notify project managers when retention is due for release — reducing the risk of disputes and improving vendor trust. 

4️⃣ Compliance and Documentation Management 

Construction projects require strict compliance tracking. Business Central allows you to: 

• Attach contracts, insurance certificates, and lien waivers directly to each subcontractor record. 

• Track retention policies per client, vendor, or region. 

• Maintain a digital audit trail of approvals and release actions. 

  
  

💡 Why it matters: Having everything in one place ensures accountability and speeds up audits or dispute resolutions. 

5️⃣ Job Costing Integration 

One of the biggest benefits of managing subcontractor billing in Business Central is the real-time connection to job costing. 

Every subcontractor invoice automatically updates: 

• Job cost totals 

• Committed costs 

• Budget vs. actual variance reports 

  
  

This means your project managers and finance team are always aligned — with accurate cost data available anytime. 

💡 Pro Tip: Use the “Committed Cost” and “Job Ledger Entry” views in BC to forecast remaining project spend before issuing new POs or approving change orders. 

6️⃣ Reporting and Dashboards 

With integrated Power BI dashboards, Business Central lets you visualize subcontractor performance and financial exposure in seconds. 

You can monitor: 

• Retention by subcontractor or job 

• Outstanding invoices and payment status 

• Cost-to-complete vs. total subcontract value 

• Vendor performance over time 

  
  

These insights help you make faster, more informed decisions about project budgets and vendor management. 

Common Mistakes Contractors Make (and How Business Central Fixes Them) 

❌ Manual Tracking in Spreadsheets → Leads to missed retention and billing errors  

✅ BC Automates it: Ensures all billings, payments, and retention are recorded against job cards. 

❌ No Centralized Subcontractor Records → Lost paperwork and inconsistent terms  

✅ BC Centralizes Data: Every document, PO, and invoice is tied to the correct vendor and project. 

❌ Delayed Retention Releases → Frustrated vendors and strained relationships  

✅ BC Adds Alerts: Automatic reminders keep your retention releases on schedule. 

Real-World Example 

A mid-sized general contractor implemented Business Central with The BC Team’s construction setup.  Before, they were tracking 50+ subcontractors manually — leading to monthly reconciliation delays. 

After automation: 

• Progress invoices and retention were processed in half the time. 

• Job profitability reporting became real-time and accurate. 

• Vendor satisfaction improved with on-time retention releases. 

Partner with The BC Team 

At The BC Team, we specialize in helping construction companies streamline subcontractor billing and retention with Microsoft Dynamics 365 Business Central. 

We’ll help you: 

• Configure subcontractor workflows and retention rules. 

• Integrate purchasing, invoicing, and job costing. 

• Build dashboards to monitor retention and vendor performance. 

• Train your project and accounting teams for smooth adoption. 

  
  

💼 Whether you’re managing 5 subs or 500, we’ll make sure your system works as hard as your crew. 

Final Thoughts 

Subcontractor billing and retention don’t have to be a headache.  With Business Central, you gain full visibility into every dollar — held or paid — while keeping your subcontractors satisfied and your cash flow healthy. 

🚀 Partner with The BC Team today to set up retention and subcontractor billing that works smarter, not harder.