Explainer

Over-billing and under-billing, explained

On a construction WIP schedule, over/(under) billing is a single number per job: billed to date minus earned revenue, where earned revenue is contract value times percent complete (cost to date divided by estimated total cost — the cost-to-cost method).

Over-billed: a liability

A positive number means you've invoiced more than the work performed justifies. That's real cash in the bank today, but it's also a balance-sheet liability — it represents work you still owe the customer. Carry too much of it across too many jobs and a bank or bonding company reads it as a sign you're financing operations on customer money rather than completed work.

Under-billed: an asset, but a cash gap

A negative number — usually shown in parentheses — means you've done work you haven't invoiced for yet. It's an asset on paper: collectable cash you're entitled to. But until you actually bill and collect it, it's cash you don't have, which is why an under-billed position that keeps growing is worth watching just as closely as an over-billed one.

Why sureties watch this ratio

Bonding companies and banks look at total over-billing relative to a contractor's equity as one signal of financial discipline: a small ratio reads as healthy billing practice, a large one reads as a contractor stretched thin across jobs. They also flag any single job where over-billing runs high relative to that job's own contract value — a concentrated red flag is different from a diffuse one. Reviewers expect a written explanation for outliers, not a perfectly clean schedule; the point is that nothing on the schedule surprises them.

Watch it change over time, not just once

A single snapshot only tells you where a job stands today. What actually predicts trouble is the trend — a job that's drifting from under-billed toward over-billed month over month, or a shrinking profit margin (profit fade) that nobody wrote down. Most contractors who build WIP by hand in a spreadsheet don't keep disciplined monthly snapshots, so the trend is invisible until it's a problem.

Want your own contract, cost, and billing figures turned into a percent complete, earned revenue, and over/(under) billed position instantly? Try the free WIP calculator — it computes on your device and never sends your figures anywhere.