Contractor WIP risk interpretation
Overbilling means you have billed more than the revenue earned so far; underbilling means you have earned more than you have billed. Work through the same job with two billing amounts, then check your own figures in the free WIP worksheet.
In a cost-to-cost WIP calculation, estimated percentage complete equals costs incurred divided by estimated total costs. Earned revenue equals that percentage times the contract value. Overbilling, often described as billings in excess, is the amount billed above earned revenue. It does not mean the invoice was collected or that the customer was charged incorrectly.
For a $500,000 contract with $400,000 estimated total costs and $200,000 costs incurred, the job is 50% complete on a cost-to-cost basis. Estimated earned revenue is $250,000. If billings to date are $300,000, overbilling is $50,000. Cash collection remains a separate question. These are fictional figures; accounting treatment depends on the contract and applicable standards.
Keep the same contract, costs and $250,000 earned revenue, but change billings to $225,000. Underbilling is $25,000: earned revenue exceeds billings. Investigate the billing schedule, pending approvals, estimates and documentation. This balance is not automatically an overdue receivable.
A stale estimated cost to complete can distort both earned revenue and the apparent billing position. Reconcile costs and billings to the job ledger, review unapproved change orders separately, and ask your accountant to review the recognition method. Do not use a single billing balance as proof of profitability or bond capacity.
Billing position = billings to date minus earned revenue. In the examples above, $300,000 minus $250,000 equals $50,000 overbilled; $225,000 minus $250,000 equals negative $25,000, or $25,000 underbilled. A zero difference means billing matches estimated earned revenue, not that the job has broken even.
Overbillings can support cash flow, but unusual concentration or trend shifts can signal execution risk that requires explanation.
Underbillings can reflect timing, but persistent growth without clear support can pressure liquidity and raise concern.
Trend direction, job mix, and consistency with earnings narrative matter more than one isolated number.
Gather the job name, contract value, estimated total cost, cost incurred to date and amount billed to date, all as of the same review date. Open the WIP check above and enter those figures. Review the result alongside unpaid invoices and expected collection dates in your cash plan; billed revenue is not a bank balance.
Reviewed September 19, 2026. Prepared by BondSBA. Examples are illustrative; professional review may be needed.
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Not always. They can help cash flow, but context and sustainability still matter.
Not always, but persistent or accelerating underbillings usually require clear explanation.
No. Underbilling compares earned revenue with billings. Accounts receivable represents amounts billed but not yet collected. A job can be overbilled and still have unpaid invoices, so review the WIP schedule and receivables together.