WIP Reports for Contractors: Over-Billing and Under-Billing, Explained

A WIP (work in progress) report lists every open job and compares what you have billed with what you have actually earned so far, based on how far along each job is. The difference shows where you have billed ahead of the work, called over-billing, and where you have done work you haven't billed yet, called under-billing.

Both matter for cash. One is customer money sitting in your account that you haven't earned. The other is work you have paid for that your customer hasn't.

The three numbers behind it

• Percent complete. The usual method is cost to cost: cost so far divided by total estimated cost.
• Earned revenue. Contract value times percent complete.
• Billed to date. Everything you have invoiced on the job.

Billed minus earned gives you the answer. Positive means over-billed. Negative means under-billed.

A worked example (made-up numbers)

Job A is over-billed by $20,000. Jobs B and C are under-billed by $19,500 together.

What over-billing means for your cash

The $20,000 on Job A is in your bank account, but you haven't done the work for it yet. It works like a customer deposit. It isn't yours to spend on payroll for other jobs, because Job A still has to be built with it. A bank balance padded by over-billing is the most common reason contractors feel flush right before a tight month. More on that in how to handle customer deposits.

What under-billing means for your cash

The $19,500 on Jobs B and C is work you have done and paid for without billing it. You are financing your customers. The fix is usually billing the next draw sooner, or getting approved change orders onto the invoice.

This is percentage of completion

A WIP report is the working tool behind percentage-of-completion accounting, where revenue is recognized as the job progresses instead of when it is invoiced. Banks and surety companies often ask for a WIP schedule. Whether your business must use percentage of completion for taxes depends on your size and your contracts, which is a question for your CPA.

Why WIP reports go wrong

• Estimates never get updated. If the total estimated cost is stale, percent complete is wrong, and so is every number after it.
• Costs get entered late. Missing bills make jobs look less complete and more under-billed than they are.
• Change orders aren't in the contract value. Earned revenue comes out too low.

All three are job costing problems first. A WIP report is only as good as the job costs underneath it.

Questions

What does WIP stand for?

Work in progress: the jobs you have started and not finished.

Is over-billing bad?

Not by itself. Billing ahead of the work is normal on many contracts. The risk is treating that cash as yours to spend before the work is done.

How often should I run a WIP report?

Monthly, after the books are closed and project managers have updated the cost to complete on each job.

Know what cash is actually yours

Over-billing, deposits and bills you already owe all sit inside your bank balance. If you want to know what is actually yours to spend, start with a free 15-minute profit check, or book a discovery call.