Contractual and Internal Holdbacks

Aidi enables you to manage both contractual and internal holdbacks on items like invoices or payment requests. This is done by deducting the holdback amount from the invoiced amount directly from the payment request or invoice. A separate invoice is usually produced for the payment of holdbacks.

What is the difference between these two types of retention? The contractual holdback is the holdback provided for in article 2111 of the Civil Code of Quebec:

“At the time of payment, the client [or construction owner] may withhold from the price, until the repairs or corrections are made to the work, a sufficient amount to meet the reservations which he made as to the apparent defects or apparent poor workmanship that existed when he accepted the work…”

This holdback, indicated as a percentage in the purchase order, is often set at 10%, but can be set at another percentage by default, if necessary. This holdback is systematically deducted from progress payments to encourage the supplier to complete the contract to the customer's full satisfaction.

The internal holdback, on the other hand, is an independent deduction, determined by the construction owner, for specific or exceptional situations or items. Sometimes referred to as a "special holdback", it is used to withhold a specific amount from a payment request and/or invoice when a particular situation arises. This internal deduction is then released when the specific situation is resolved.

In terms of project accounting, the main difference between these 2 holdbacks is in the way they are released:

• Contractual holdbacks are paid on an invoice 
• Whereas it's up to you to release the internal holdback, manually, because technically, the supplier has already invoiced you for this amount and therefore can't reissue a new invoice.

Contractual Holdbacks

In the Purchase Order

In the Payment Request

In the Invoice

Contractual Holdback Payment

Internal Holdbacks

In the Payment Request

In Invoice

Releasing Internal Holdbacks

 

Contractual Holdbacks

The contractual holdback percentage is generally entered when the purchase order is created. However, deductions can be added directly in the payment request or when creating the invoice.

In the Purchase Order

You'll find the contractual holdback in the Purchase Order Information section. In a purchase order with status In Preparation, enter the holdback percentage that will be applied to the invoice.

If your user role allows, you can also modify the contractual holdback of an approved purchase order by clicking on the Modify button.

In the Payment Request

If a contractual holdback is entered in the purchase order, it will follow in the payment request. However, you will have the option of modifying the percentage if necessary, or adding a holdback if there was none on the purchase order. 

When amounts payable are entered in the payment request, the contractual holdback amount is displayed in the box next to the percentage.

The contractual holdback section of the payment request also allows you to enter a fixed amount instead of a percentage. Simply select the radio button in front of the $ field to enter an amount.

✏️Note: Selecting a fixed deduction amount removes the existing percentage, if any.

In the Invoice

A section of the invoice is entirely dedicated to holdbacks. As with the payment request, if a contractual holdback is entered in the purchase order and/or payment request, it will follow in the invoice. You'll have the option of modifying the percentage if necessary, or adding a deduction if there was none on the purchase order or payment request.

Note the information in the Synthesis section:  

1. Invoice Amount: Total amount, does not take into account the holdback.
2. Payable Amount: Invoice amount minus contractual holdback, minus internal holdback plus payment of contractual holdback, if applicable.
3. Amount Left to Bill: Purchase Order Amount less the sum of all Payable amounts on invoices associated with the purchase order, excluding internal holdbacks. Contractual holdbacks are included in this amount.

Contractual Holdback Payment

When you're ready to make a contractual holdback payment, create a new invoice. You don't have to go through a payment request to pay contractual holdbacks.

1. In the invoice, access the Holdbacks section.
2. Click on the Contractual Holdback Payment field.

3. Enter the holdback amount to be paid. 
4. Click on the check mark to confirm the amount.

5. The Synthesis section does not display an Invoice Amount, as this holdback was included in the amount of a previous invoice. 
6. The Amount Left to Bill is adjusted according to the Payable Amount.

7. Approve the invoice as you would any other invoice.

✏️Note: It is possible to add a contractual holdback payment to a regular invoice, whether or not it is made following a payment request, but contains amounts linked to budget items.

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Internal Holdbacks

Internal holdbacks can only be added at payment request and invoice level.

In Payment Request

In the same way as a contractual holdback, the internal holdback can be created in the payment request by entering either a percentage or a fixed amount. Simply select the radio button in front of the % field or the $ field to enter a percentage or an amount. 

 

In Invoice

As with contractual holdbacks, if an internal holdback is entered in the payment request, it will follow in the invoice. You will have the option of modifying the percentage if necessary, or adding a holdback if there was none on the payment request, or if the payment request is not required.

Information in the Synthesis section above (all amounts before tax):  

1. Invoice amount: Total amount, does not take into account the holdbacks.
2. Payable Amount: Invoice amount minus contractual holdback, minus internal holdback plus payment of contractual holdback, if applicable.
3. Amount Left to Bill: Purchase Order Amount less the sum of all Payable amounts on invoices associated with the purchase order, excluding internal holdbacks. Contractual holdbacks are included in this amount.

Releasing Internal Holdbacks

Internal holdbacks can be released from the Holdbacks page in the Closing menu.

To create a holdback release, click on the Create button.

1. Select the project, if your project is set in the secondary menu, the project will already be selected.
2. Select the supplier for which the internal holdbacks have been made.
3. Enter a reference number.
4. Click on Save and open.

In the Release by invoice section, all invoices including an internal holdback for this supplier are displayed.

✏️Note: The release of contractual holdbacks is not handled by this feature.

You will find the following information: 

1. Invoice Total amount: This amount does not include any deductions.
2. The total amount of internal deductions for this invoice (Description and Release by invoice section).
3. It is possible to partially release the holdback, the remaining amount of holdback to be released is displayed (Description and Release by invoice section).

To release all or part of the holdback, you can either:

4. Enter the percentage to be released.
5. Enter a fixed amount.

✏️Note: If you enter a percentage, the amount released is calculated automatically, and vice versa. The data entered is saved automatically, and once saved you will be authorized to modify only the data entered. For example, if you have entered a percentage, you will be able to modify the percentage but not the amount.

6. Whether you have entered a percentage or a fixed amount, the current release amount is displayed in the Description section.

You can obtain a report of invoices with associated holdbacks in the Report Center by selecting the “Purchase Order Balance report” (e.g. Solde des bons de commande in French).

 

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