WIP over/under billing

What it is

Contractors bill customers on a schedule, often monthly progress billings. Revenue, though, is earned as the work is done. The two rarely match.

Over/under billing measures the gap, job by job. It is the core of the work in progress (WIP) schedule, the monthly report that controllers prepare and that sureties and lenders review.

Why operators track it

• Cash. Underbilling usually means work has been done but not invoiced, so cash is tied up.
• Risk. Underbilling can also mean costs are running ahead of plan on a job that is in trouble. Large overbilling on a job with a shrinking margin can mean cash collected now will be needed to finish the work.
• Bonding and credit. Sureties and lenders look at the WIP schedule when deciding bonding capacity and credit lines.
• Accurate revenue. Earned revenue drives the income statement for companies that recognize revenue over time.

How it is calculated

Over/under billing = billed to date − earned revenue

• Earned revenue = percent complete × revised contract value
• Percent complete (cost-to-cost method) = cost to date ÷ estimated total cost
• Estimated total cost = cost to date + estimated cost to complete

Revenue recognition rules (ASC 606 for US GAAP) govern how a company recognizes revenue over time. Cost-to-cost is a common input method. Confirm the method with a CPA; this page explains the calculation, not the accounting policy.

Worked example

Job 2417 has a revised contract value of $1,500,000. Cost to date is $910,000 and estimated total cost is $1,330,000, so the job is 68.4% complete and has earned $1,026,316. The contractor has billed $1,100,000.

How to read it

• Positive is overbilled (billed ahead of the work). It is recorded as a liability, often labeled "billings in excess of costs and estimated earnings".
• Negative is underbilled (work done, not yet billed). It is recorded as an asset, often labeled "costs and estimated earnings in excess of billings".
• Neither is good or bad by itself. Moderate overbilling helps cash flow. What matters is whether each balance can be explained.
• Watch the combination with margin. A job that is underbilled and has a fading projected margin deserves a closer look.
• There is no universal target, so we do not publish a benchmark.

Definitional choices and common pitfalls

• Percent complete method. Cost-to-cost is common. Some companies use units installed or engineer estimates for certain job types.
• Retainage. Billed to date normally includes retainage billed, even if it has not been collected. Some reports show retainage separately.
• Change orders. Use the revised contract value once change orders are approved. Label any unapproved change orders that are included.
• Do not net the two sides. Overbillings and underbillings go to different balance sheet lines. Report both totals.
• Stale cost to complete. Because percent complete depends on estimated total cost, an outdated forecast distorts earned revenue.

How different roles use it

Questions it answers

• Which jobs are billed behind the work?
• How much cash is tied up in underbilling?
• Are any overbilled jobs also losing margin?
• Is the WIP schedule ready for the surety?

How to present it in a report

• Use the standard WIP schedule layout: one row per open job with contract value, cost to date, estimated total cost, percent complete, earned revenue, billed to date, and over/under.
• Show total overbilled and total underbilled separately at the top.
• Add projected margin and its change since last month so readers can spot fade.
• Produce the same layout every month. Sureties and lenders compare period to period.

Data you need

Fields

What the raw data looks like

Example data A few rows as they might come out of the source system.

Where this data usually lives

• Construction ERP and accounting holds budgets, job cost, change orders, billing, and retainage. For example: Sage 300 Construction and Real Estate, Viewpoint Vista (Trimble).
• Project management often holds change orders and their status, and sometimes budgets and forecasts. For example: Procore.
• Estimating produces the original budget by cost code before the job starts.
• Payroll and time tracking feed labor cost and hours to job cost.
• Spreadsheets often hold the PM's cost-to-complete forecast or the WIP schedule itself.

The same field can live in more than one system. Agree with the customer which one is the source of truth.

Common data gaps and traps

• Change order revenue and cost entered separately. If only one side is entered, percent complete and earned revenue are both wrong.
• Billings without retainage split. Some systems store net billings only. Ask how retainage is recorded.
• Stale cost to complete. It changes percent complete, so earned revenue moves with it.
• Unposted costs at month end. Invoices not yet entered make the job look less complete and underbilled.
• Closed jobs still open. Jobs that are finished but not closed out in the system stay on the WIP schedule.

Related metrics

• Job cost variance: the EAC that drives percent complete.
• Gross margin by job: earned revenue minus cost to date.
• Backlog: revised contract value minus earned revenue.
• Retainage receivable: cash billed but held back. Coming soon.

FAQ

Is overbilling good or bad?

Neither by itself. Moderate overbilling helps cash flow. Large overbilling on a job with falling margin is a risk because the cash will be needed to finish the work.

Why does underbilling worry lenders and sureties?

It can mean unbilled work, or costs running ahead because the job is in trouble. It is an asset that has not turned into cash.

What is the cost-to-cost method?

Percent complete equals cost to date divided by estimated total cost. It is a common input method for recognizing revenue over time.

How often should the WIP schedule be prepared?

Monthly, after costs and billings for the month are posted and PMs have updated cost-to-complete.

revised_contract_value  = original_contract + approved_change_orders (revenue side)
estimated_total_cost    = cost_to_date + estimated_cost_to_complete
percent_complete        = cost_to_date / estimated_total_cost
earned_revenue          = percent_complete * revised_contract_value
over_under_billing      = billed_to_date - earned_revenue

WITH contract AS (
  SELECT j.job_id, j.pm_id, j.division,
         j.original_contract + COALESCE(SUM(co.revenue_amount) FILTER (
           WHERE co.status = 'approved' AND co.approved_at <= :as_of), 0) AS revised_contract_value
  FROM jobs j LEFT JOIN change_orders co ON co.job_id = j.job_id
  GROUP BY 1, 2, 3, j.original_contract
),
cost AS (
  SELECT job_id, SUM(amount) AS cost_to_date
  FROM job_costs WHERE posted_at <= :as_of GROUP BY 1
),
ctc AS (
  SELECT job_id, SUM(estimated_cost_to_complete) AS cost_to_complete
  FROM cost_forecasts WHERE period = :period GROUP BY 1
),
billed AS (
  SELECT job_id, SUM(amount) AS billed_to_date      -- gross, including retainage
  FROM billings WHERE invoice_date <= :as_of GROUP BY 1
)
SELECT
  c.job_id, c.pm_id, c.division,
  c.revised_contract_value,
  co.cost_to_date,
  co.cost_to_date + COALESCE(t.cost_to_complete, 0)                         AS estimated_total_cost,
  co.cost_to_date / NULLIF(co.cost_to_date + COALESCE(t.cost_to_complete,0), 0) AS percent_complete,
  c.revised_contract_value * co.cost_to_date
    / NULLIF(co.cost_to_date + COALESCE(t.cost_to_complete,0), 0)           AS earned_revenue,
  COALESCE(b.billed_to_date, 0)                                              AS billed_to_date,
  COALESCE(b.billed_to_date, 0) - c.revised_contract_value * co.cost_to_date
    / NULLIF(co.cost_to_date + COALESCE(t.cost_to_complete,0), 0)           AS over_under_billing
FROM contract c
JOIN cost co      ON co.job_id = c.job_id
LEFT JOIN ctc t   ON t.job_id = c.job_id
LEFT JOIN billed b ON b.job_id = c.job_id;

Version 1.0 · Last reviewed 2026-10-20 · Machine-readable definition