A WIP (work-in-progress) schedule compares what you've billed on each job with what you've actually earned based on the work completed. When billings run ahead of earnings, you're overbilled: you've collected cash for work you still owe. That cash feels like profit, but it's a liability. Spend it on overhead or the next job, and you've set up a cash crunch that shows up months later, usually right when the job is winding down and the bills are coming in.
Here's how to read a WIP schedule, how to calculate over- and underbilling yourself, and a short monthly review that catches the problem early.
What a WIP Schedule Shows
A WIP schedule lists every open job with a handful of columns: the contract value (including approved change orders), the estimated total cost, costs incurred to date, billings to date, and two calculated numbers, earned revenue and over/underbilling. It's the one report that tells you whether each job is actually making the money you bid it to make, and whether your bank balance is telling you the truth.
Under GAAP (ASC 606), most construction contracts recognize revenue over time as the work is performed, commonly measured by the share of estimated cost you've incurred. That's the familiar percentage-of-completion approach, and it's what the WIP schedule puts into practice.
How to Calculate Over- and Underbilling
Three steps per job:
- Percent complete = costs incurred to date ÷ estimated total cost.
- Earned revenue = percent complete × contract value.
- Over/(under)billing = billings to date − earned revenue. A positive number means overbilled; a negative number means underbilled.
Here's a simple example with three open jobs: A is a retail buildout, B an office remodel, and C a warehouse addition.
| Job | Contract | Est. cost | Cost to date | % done | Earned | Billed | Over/(under) |
|---|---|---|---|---|---|---|---|
| A | $800,000 | $640,000 | $320,000 | 50% | $400,000 | $470,000 | $70,000 |
| B | $450,000 | $360,000 | $270,000 | 75% | $337,500 | $300,000 | ($37,500) |
| C | $1,200,000 | $1,020,000 | $204,000 | 20% | $240,000 | $330,000 | $90,000 |
| Net overbilled across all three jobs | $122,500 | ||||||
Look at what this contractor's bank account says versus what the WIP says. They've collected $122,500 more than they've earned across these jobs. If the owner reads a healthy bank balance as "we're doing great" and spends it, that $122,500 still has to be paid for in labor, materials, and subs as Jobs A and C finish, with no new billings left to cover it.
Job B is the opposite problem: $37,500 of work done but not yet billed. That's cash you've earned and haven't asked for, often a sign of slow pay applications or change orders that haven't been billed.
Why Overbilling Feels Like Profit (and Why It Isn't)
Front-loading billings is common and not always a problem. It can be a deliberate way to fund mobilization and early material purchases. The trouble starts when the overbilling is spent rather than reserved. At that point, the cash from Job C is quietly paying for the end of Job A, and the business only stays afloat as long as new jobs keep starting. When work slows down, the gap shows up all at once.
Lenders, sureties, and CPAs all read your WIP closely for exactly this reason: a pattern of large or growing overbillings, especially alongside rising payables, can signal that the business is relying on future work to pay for past jobs.
Warning Signs to Watch For
- Stale cost estimates. If estimated total costs haven't been updated since the bid, every percent-complete number is wrong.
- Profit fade. A job's projected margin keeps shrinking month after month as estimates catch up with reality.
- Overbillings growing faster than backlog. Cash is coming in ahead of work at an increasing rate.
- Unposted sub and vendor invoices. Costs that haven't hit the job yet make it look further behind (and more overbilled) than it is, or more profitable than it is.
- Unapproved change orders booked as revenue. If the owner hasn't signed it, it shouldn't be in your contract value yet.
- A healthy bank balance with rising payables. Often the clearest sign overbillings are being spent.
A 15-Minute Monthly WIP Review
You don't need to become an accountant to stay ahead of this. Once your WIP is built each month, these five questions catch most problems early:
- Were cost-to-complete estimates updated this month with input from the field?
- Which jobs changed margin by more than a couple of points since last month, and why?
- Is total net overbilling going up or down, and is the cash behind it set aside or spent?
- Are there underbilled jobs we can bill right now?
- Are all approved change orders included, and all unapproved ones left out?
If you can't answer the first question confidently, start there. A WIP schedule built on bid-day estimates looks precise and tells you very little.
What a Reliable WIP Needs From Your Books
A WIP schedule is only as good as the accounting underneath it. Before you trust the numbers, make sure these basics are in place:
- Every cost coded to a job. Labor, materials, equipment, and sub invoices all need a job (and ideally a cost code) as they're entered, not reassigned at year-end.
- Accruals for costs you've incurred but haven't been billed for. If a sub finished work this month but hasn't invoiced yet, the job is further along than your books show.
- Retainage tracked separately. Retainage receivable and payable should sit in their own accounts, not buried in AR and AP.
- Billings recorded by job. Pay applications should post to the right job so billings to date tie out to your AR.
- A consistent monthly close. WIP built on a close that happens "whenever we get to it" will always be out of date.
Get these right and the WIP stops being a quarterly fire drill. It becomes a monthly snapshot you can actually manage the business from.
Getting Your WIP Out of a Spreadsheet
Many contractors build WIP in a spreadsheet pulled together at quarter-end, if at all. The better setup is job costing that flows from your project tools into your books every month, so the WIP is a byproduct of clean books rather than a separate project. We set that up in QuickBooks Online or Intuit Enterprise Suite, connected to tools like Procore, Buildertrend, Knowify, or ServiceTitan, and review the WIP with you monthly as part of our construction accounting. If your job costs are already a mess, a catch-up cleanup is the right first step.
For the broader picture of how strong revenue and tight cash can coexist, see why profitable businesses run out of cash.
FAQ
What is overbilling in construction?
Overbilling means you've invoiced more on a job than you've earned based on the work completed. It shows up on the balance sheet as a liability, not profit, because you still owe the remaining work for that cash.
Is overbilling bad?
Not on its own. Moderate overbilling can help fund early job costs. It becomes a problem when the extra cash is spent on overhead or other jobs instead of being reserved for the work it was billed for, or when overbillings keep growing faster than your backlog.
How do you calculate percentage of completion for a WIP schedule?
Divide costs incurred to date by the estimated total cost of the job. Multiply that percentage by the contract value to get earned revenue, then subtract earned revenue from billings to date to find over- or underbilling.
How often should a contractor update the WIP schedule?
Monthly, with updated cost-to-complete estimates from the field. A WIP built only at quarter- or year-end, or on original bid estimates, tends to hide problems until they're expensive to fix.
This article is general guidance, not personalized accounting or tax advice. Revenue recognition and WIP reporting depend on your contracts — talk to us about yours.