Free tool · The schedule your banker asks for
Are you overbilled or underbilled?
A work-in-progress schedule compares what you have earned on a job against what you have invoiced for it. The difference is the single most useful number in construction accounting, and most contractors never see it until the job is finished and the money is gone.
What the two positions actually mean
Overbilled
You have invoiced more than you have earned. On the balance sheet this is billings in excess of costs and estimated earnings — a liability, because you owe the customer work.
It is not automatically bad. Front-loading a schedule of values is how contractors fund a job. It becomes dangerous when the bank balance is read as profit, because the last third of the job then has to be built on money that has already been spent.
Underbilled
You have done more than you have invoiced. On the balance sheet this is costs and estimated earnings in excess of billings — an asset, because the customer owes you for work already completed.
This one is nearly always a problem. You are lending the customer money at no interest, usually because billings are behind the schedule of values, change orders went unbilled, or costs have quietly overrun the estimate.
How percent complete is worked out
The cost-to-cost method: costs incurred to date divided by the estimated total cost at completion. If you have spent $118,800 against an estimate of $198,000, the job is sixty percent complete and has earned sixty percent of its contract value.
The method is only as good as the estimate at the bottom of the fraction. An estimated cost at completion that nobody has updated since the bid will report a job as further along than it is, which is exactly how a job looks profitable until the month it closes.
Why anyone asks for this
Sureties and banks read the WIP schedule before they read the profit and loss. It tells them whether reported profit is real or borrowed from unfinished work, and whether the company can fund what it has already committed to.
For you it does something more useful: it catches a job going wrong while there is still job left to fix it.
Questions
What is percentage of completion?
A method of recognising revenue as a job progresses rather than when it finishes. Most contractors use the cost-to-cost approach: costs incurred to date divided by estimated total cost gives the percentage, and that percentage of the contract value is the revenue earned.
Is being overbilled good or bad?
Neither on its own. Billing ahead of cost is a normal way to fund a job. The risk is treating the resulting bank balance as profit, then finding the last stage of the job has to be paid for out of money already spent.
Why does underbilling matter if the customer will pay eventually?
Because you are funding their project in the meantime, and because underbilling frequently means costs have overrun without anyone updating the estimate. The cash problem is visible; the margin problem underneath it usually is not.
How often should a WIP schedule be updated?
Monthly, alongside the close, with the estimated cost at completion genuinely revisited each time rather than carried forward from the bid.
Does this replace a full WIP schedule?
No. This works one job at a time. A real schedule lists every open job and totals the over and under billings so the adjustment can go on the balance sheet.
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