Retention Invoice Format Template: Step-by-Step Guide
Published By
Issam Siddique
Finance
Nov 4, 2025
In Saudi Arabia, clients, especially in construction and IT, often hold back part of a project's payment until the work is fully completed. As the country advances under Vision 2030, focusing on transparency, efficiency, and more innovative business processes, properly managing these retention payments has never been more critical for smooth cash flow and strong client relationships.
Understanding how to prepare a retention invoice format ensures that you secure your payments on time, maintain transparency with clients, and comply with local business regulations.
In this blog, you will learn what a retention invoice is, why it matters, and the key components of an effective format. We'll guide you step by step in creating your own retention invoice format with a sample template, highlighting common mistakes to avoid. This will help you streamline billing, safeguard payments, and strengthen client relationships.
Quick Overview
Retention invoices help protect payments, manage cash flow, and reduce disputes in Saudi business contracts.
Key components include business and client details, invoice number, itemized breakdown, retention amount, and payment terms.
Follow clear steps: gather project info, calculate retention, create itemized invoices, set payment terms, review, and add a footer.
Avoid mistakes like miscalculating retention, missing invoice numbers, skipping itemized details, or omitting notes and the footer.
Using HAL automates invoicing, ensures ZATCA compliance, and accelerates payments, saving time and effort.
What Is a Retention Invoice?
A retention invoice is an invoice used to claim the portion of payment that a client holds back until a project or contract milestone is fully completed. It ensures that the withheld amount is formally requested and documented. Retention invoices are common in project-based industries like IT and construction, helping businesses protect cash flow and maintain transparency with clients.
Why Retention Invoice Matters?
Using a retention invoice is essential for managing payments and keeping projects on track in Saudi Arabia’s business environment. Here is why it matters for your business:
1. Protect Your Payments
Retention invoices allow you to hold back a portion of payment until the project or contract work is fully completed to agreed standards, giving you better control over cash flow.
2. Build Trust with Clients
By using retention invoices, you show your clients that you follow a transparent process, building confidence and setting clear expectations for project quality.
3. Comply with Local Contract Norms
Retention is widely used in Saudi contracts, especially in construction, IT, and service projects. Following the correct retention invoice format demonstrates adherence to regional standards.
4. Handle Project Disputes Effectively
Retention invoices provide formal proof in case of disagreements over timelines or work quality, protecting your business rights and simplifying dispute resolution.
Managing retention invoices correctly is essential to protect your payments, reduce disputes, and maintain smooth cash flow. To make this process easier and more efficient you can use HAL ERP, a smart solution designed for SMEs and IT teams in Saudi Arabia. Get accurate, professional invoices and stay on top of your payments effortlessly.
Knowing why retention invoices matter helps you see their role in protecting payments, but to put this into practice, you need to get familiar with the key components every invoice should have.
Key Components of a Retention Invoice Format
A clear retention invoice format helps you manage withheld payments professionally and avoids confusion with clients. Here are the essential components you should include:
Now that the structure is clear, it’s time to explore a step-by-step approach to preparing a retention invoice that works for your business.
12 Simple Steps to Creating a Retention Invoice Format
Creating a retention invoice may seem complex, but following a clear step-by-step approach ensures accuracy, compliance, and timely payments for your projects.
Step 1: Gather Project Details
Collect all project or contract documents.
Identify milestones, deliverables, and timelines.
Review retention clauses in the agreement to ensure compliance.
Verify client expectations for each stage of the project.
Step 2: Prepare Client Information
Include the client’s full name and company details.
Add the client address and contact person for approvals.
Confirm email and phone contacts for smooth communication.
Ensure details match the original contract to avoid errors.
Step 3: Assign a Unique Invoice Number
Generate a sequential invoice number for tracking.
Avoid duplicate numbers to prevent confusion in accounting.
Record the invoice number in your accounting system.
Use a consistent format for easier retrieval and reporting.
Step 4: Calculate the Retention Amount
Determine the retention percentage or fixed amount as per the contract.
Ensure calculations are correct for each milestone or service.
Verify the total retention does not exceed contractual limits.
Document the method of calculation for transparency.
Step 5: List Itemized Deliverables
Include each product, service, or milestone separately.
Add descriptions, quantities, unit prices, and subtotal amounts.
Clearly show the retention amount for each item.
Make it easy for the client to verify the calculations.
Step 6: Specify Payment Terms
Clearly state when payments are due, including retention release.
Mention any conditions tied to project approval or handover.
Include penalties or late fees if applicable.
Keep terms concise and easy to understand.
Step 7: Include Retention Account Reference
Specify the accounting asset account used (e.g., Retention Receivable).
Ensure consistency with your financial records.
Maintain clarity for audit and reporting purposes.
Align with Saudi accounting practices to meet compliance standards.
Step 8: Add Tax Notes
Mention that retention is generally not taxable in Saudi Arabia.
Clarify that VAT does not apply to withheld amounts.
Ensure transparency to avoid client misunderstandings.
Keep the note simple and professional.
Step 9: Provide Bank and Payment Details
Include bank name and branch information.
Add IBAN or SWIFT codes for international transfers.
Include currency preference (SAR) to avoid conversion issues.
Step 10: Include Notes or Scope Section
Add a short note about project deliverables and milestones.
Clarify conditions for releasing retention.
Include any client-specific instructions.
Provide context to avoid disputes or misunderstandings.
Step 11: Review and Send
Double-check all invoice details for accuracy.
Verify calculations, client information, and payment instructions.
Ensure clarity and professionalism in formatting.
Send the invoice promptly and keep a copy for your records.
Step 12: Add Footer Section
Include a thank-you note to show appreciation for the client.
Provide support contact details for any questions or clarifications.
Attach links to terms, policies, or relevant project documents if needed.
Ensure the footer looks professional and reinforces trust with the client.
Following these steps, this sample invoice demonstrates how to structure your retention invoice clearly and professionally.
Sample Retention Invoice Template for Saudi Arabian Businesses
Creating a clear retention invoice helps ensure timely payments and avoids confusion. Here is a template you can use for your projects:
[Your Company Name & Logo]
Address: [Your Company Address]
Contact: [Phone / Email]
Invoice To:
[Client Name]
[Client Company]
[Client Address]
Contact Person: [Name]
Invoice Details:
Invoice Number: INV-2025-001
Issue Date: [DD/MM/YYYY]
Project/Contract Reference: [Project ID / Contract Number]
Retention Details:
Item / Service
Description
Quantity
Unit Price
Subtotal
Retention (%)
Retention Amount
Website Development
Final Milestone Delivery
1
SAR 50,000
SAR 50,000
10%
SAR 5,000
Payment Terms:
Total Amount Due (excluding retention): SAR 45,000
Retention Amount: SAR 5,000
Payment Due: 30 days after project completion or client approval
Bank Details:
Bank Name: [Bank Name]
IBAN/SWIFT: [IBAN/SWIFT Code]
Accepted Payment Methods: Wire Transfer / Online Payment
Currency: SAR
Notes:
Retention will be released after final project approval.
Contact [Support Email / Phone] for any questions.
Footer: Thank you for your business. We appreciate your timely payments and partnership.
Templates make invoicing easier, yet overlooking key details can still cause issues. Let’s look at common mistakes to avoid.
Common Retention Invoice Mistakes and How to Fix Them
Even with a clear retention invoice format, small errors can cause delays, disputes, or missed payments. Avoid these common mistakes to keep your billing smooth and professional.
1. Errors in Retention Calculation
Miscalculating the retention percentage or fixed amount can lead to disputes.
Use clear formulas and verify amounts for each item or milestone.
Keep records of how retention was calculated for transparency.
2. Missing or Incomplete Invoice Number
Skipping a unique invoice number creates confusion in accounting.
Ensure sequential numbering and proper tracking.
Record all invoice numbers in your financial system for easy retrieval.
3. Lack of Itemized Breakdown
Listing only total amounts without detailing deliverables can confuse clients.
Include descriptions, quantities, unit prices, subtotals, and retention for each item.
Ensure the client can clearly see how the retention was applied.
4. Omitting Notes or Scope Section
Skipping project-specific notes can lead to disputes over retention release.
Add clear instructions about deliverables, milestones, and conditions for release.
Include client-specific instructions if needed.
5. Incomplete Footer or Contact Details
Missing a footer with thank-you notes or support contacts reduces professionalism.
Always add support emails, phone numbers, and links to terms or policies.
Reinforce trust and maintain a professional image with clients.
6. Not Reviewing Before Sending
Sending invoices with errors affects credibility and delays payments.
Double-check all calculations, client details, and formatting.
To see how automation and smart invoicing work in practice, let’s explore how HAL ERP helped a leading Saudi retailer achieve seamless e-invoicing compliance.
How HAL ERP Helped Al Haram Retail Chain Achieve E-Invoicing Compliance
When it comes to managing invoicing and ZATCA compliance in Saudi Arabia, businesses need solutions that are reliable, fast, and fully automated. Al-Haram, a leading retail chain, faced this exact challenge.
Client: Al-Haram, a Saudi retail chain
Challenge: Needed a reliable solution for ZATCA e-invoicing compliance while minimizing manual effort and avoiding business disruption.
Solution: Implemented HAL VAT Care, integrated seamlessly with existing systems to automate e-invoicing.
Implementation: Completed swiftly with zero disruption to daily operations.
Outcome:
Automatically generates ZATCA-compliant invoices.
Simplifies tax reporting and eliminates manual errors.
Provides peace of mind and allows focus on core retail operations.
From smooth ZATCA compliance to faster payments, HAL ERP proves that invoicing doesn’t have to be complicated. Here is how it can transform your process.
How HAL ERP Makes Your Invoicing Faster and Smarter?
Managing invoices in Saudi Arabia can be challenging, especially with ZATCA e-invoicing and tight cash flow timelines. HAL simplifies your invoicing process, helping you create professional invoices, get paid faster, and stay compliant.
Here is how HAL makes invoicing smarter:
Compliant E-Invoicing: Meet ZATCA Phase I & II requirements effortlessly.
Flexible Invoice Types: Standard, recurring, milestone-based, or project-specific invoices in seconds.
Easy Sharing: Send invoices via email, WhatsApp, or mobile notifications.
Automated Online Payments: Collect and reconcile payments automatically.
Convert Quotes to Invoices Quickly: Automate billing from orders, contracts, or time-and-material documents.
AI Payment Follow-Up: HAL reminds clients automatically, so you never miss a payment.
Mobile Approval: Approve invoices directly from your phone.
Accelerate Cash Flow: Follow up and collect payments through online and offline channels.
Multi-Company Management: Sync orders and invoices across multiple companies seamlessly.
Professional Invoice Generation: Create polished, accurate invoices in seconds.
Comprehensive Reporting: Real-time insights on invoices, cash flow, sales, and tax reporting.
Streamlined Refunds: Generate credit notes and manage reimbursements easily.
Conclusion
A well-structured retention invoice format is crucial for protecting payments, ensuring compliance, and maintaining smooth cash flow in Saudi business operations. By following the steps outlined, gathering project details, calculating retention accurately, itemizing deliverables, and reviewing invoices, you can avoid common mistakes and streamline your billing process.
With HAL ERP, creating, sending, and tracking retention invoices becomes effortless. Automate invoice generation, ensure ZATCA-compliant e-invoicing, and get paid faster with integrated payment options and smart follow-ups.
Ready to simplify your invoicing process? Book a demo today and see how smart retention invoicing can transform your payments workflow.
Frequently Asked Questions
1. Can retention amounts be included in VAT calculations in Saudi Arabia? Retention amounts are generally not subject to VAT under Saudi tax regulations. When preparing a retention invoice, clearly mention that the withheld amount is exempt from VAT to maintain transparency with clients and ensure compliance with ZATCA e-invoicing rules.
2. How can SMEs track retention payments effectively? SMEs can track retention payments efficiently using automated invoicing tools like HAL ERP, which allows you to monitor outstanding amounts, release schedules, and client approvals. Proper tracking ensures timely collection and reduces manual errors in accounting.
3. What types of projects typically require a retention invoice in Saudi Arabia? Retention invoices are most common in construction, IT services, and long-term service contracts. They are used whenever project deliverables need to be verified before full payment, ensuring work quality and compliance with local contract norms.
4. How do I release retention payments once the project is complete? Retention payments are released once the project or milestones meet the agreed standards, and the client provides approval. Using integrated systems like HAL ERP, you can automate release triggers, generate final invoices, and reconcile payments efficiently, minimizing delays.
Issam Siddique
Issam Siddique is a visionary IT strategist and co-founder of HAL Simplify, with a dynamic career journey from Infosys to leading transformative digital solutions for Saudi businesses. Renowned for bridging business and technology, Issam combines deep ERP expertise with a keen understanding of Saudi Arabia's evolving digital ecosystem, empowering enterprises to accelerate growth and achieve operational excellence.
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