What over and under billing means
On a longer job, what you’ve billed rarely matches the work you’ve actually done. The difference is over billing or under billing, and it’s the heart of a WIP (work-in-progress) schedule.
- Over billing means you’ve billed more than you’ve earned. The cash is helpful, but it’s a liability: the work still has to be done and paid for.
- Under billing means you’ve done more work than you’ve billed. Your money is tied up in the job, and it can signal billing delays, unapproved change orders or a job that’s running over budget.
How the calculator works (cost-to-cost method)
- Percent complete = cost to date ÷ estimated total cost.
- Revenue earned = contract value × percent complete.
- Over/(under) billing = billed to date − revenue earned.
- Projected gross profit = contract value − estimated total cost.
In the example, $95,000 spent of a $190,000 estimate means the job is 50% complete. Half of the $250,000 contract, $125,000, has been earned. With $140,000 billed, the job is over billed by $15,000.
Why lenders and bonding companies care
Banks and surety companies read over/under billing closely. Consistent under billing can mean costs are running ahead of estimates. Large over billing can hide a cash shortfall waiting at the end of the job. Accurate cost-to-complete estimates matter more than anything else here: if the estimated total cost is too low, percent complete and profit are both overstated.
We prepare WIP schedules as part of advanced construction reporting where it’s in scope.
Common questions
How do you calculate over and under billing?
Using the cost-to-cost method, divide cost to date by estimated total cost to get percent complete, multiply by the contract value to get earned revenue, then subtract earned revenue from billed to date. A positive result is over billing; negative is under billing.
Is over billing good or bad?
Modest over billing is common and helps cash flow, but it’s a liability, not profit. The remaining work still has to be completed with less billing left. Large or growing over billing deserves a closer look.
Where do over and under billings go on the balance sheet?
Over billings (billings in excess of costs and estimated earnings) are a current liability. Under billings (costs and estimated earnings in excess of billings) are a current asset.
What is the cost-to-cost method?
It measures progress on a job by comparing costs incurred to date with the total estimated cost. It’s the most common way contractors estimate percent complete for a WIP schedule.
This calculator gives estimates for general planning. It isn’t tax, legal, lending or accounting advice for your specific situation, and lenders may calculate figures differently.