Overbilling and underbilling
Overbilling means you have billed more than the revenue earned so far on a job. Underbilling means you have earned more than you have billed.
On the work in progress schedule, overbillings are a liability and underbillings are an asset. Both show whether billing is keeping pace with the work.
Example
A job is 60 percent complete, so $300,000 is earned, but only $250,000 has been billed. The $50,000 difference is an underbilling: work done but not yet invoiced.
Common mistake
Treating overbilling as profit. Cash collected ahead of the work is owed back as future performance, and spending it on other jobs is how cash crises start.
How to use it
Review over- and underbillings on every WIP each month and keep billing close to real progress.
Why underbilling is dangerous
Underbilling means you are financing the client's project with your own cash. Labor and materials went out, but the invoice did not, so the business covers the gap. Chronic underbilling usually means billing is done late, or that change order work is being performed without being added to the next bill. Either way the fix is procedural: bill on completion of each stage, not when someone remembers.
Why overbilling feels good and is not
Billing ahead of the work brings cash in early, which looks like a strong month. But that cash comes with an obligation: you still owe the work. A contractor who spends overbilled cash on the next job is borrowing from the future, and a slow quarter or a dispute can turn that into a crisis. Sureties and lenders read overbilling as a liability for exactly this reason.
How they appear on the WIP
The work in progress schedule lists each job with the contract amount, costs to date, percent complete, revenue earned and amount billed. When billed exceeds earned, the job shows an overbilling, grouped with liabilities. When earned exceeds billed, it shows an underbilling, grouped with assets. Our work in progress glossary entry walks through the full schedule.
Keeping the two sides close
Perfect alignment is rare, but large gaps deserve questions. Review the WIP monthly, right after reconciliation, and look for jobs where billing and progress have drifted apart. Small drifts usually mean timing; big ones mean a process problem or an estimate problem. Your bookkeeper can flag the jobs that need attention so you can adjust billing deliberately.