WIP Reports & Over/Under Billing, Explained

1. What a WIP report is — and why your CPA asks for it first

On a fixed-price job that runs longer than one billing cycle, two clocks run at different speeds: the rate you spend money (costs) and the rate you collect it (billings). They almost never line up. A work-in-progress report exists to reconcile them, job by job, so you can answer one question: of the cash in my account, how much have I actually earned, and how much is just money I’ve billed ahead?

That’s why a CPA, a surety underwriter, or a lender asks for your WIP schedule before almost anything else. It’s the clearest single picture of financial health for a contractor — far more revealing than a bank balance, which can look healthy on a job that’s quietly losing money. For the underlying definition, see the work-in-progress glossary entry.

2. Percentage of completion: the cost-to-cost method

Everything on a WIP report flows from one estimate of how “done” each job is. The standard, defensible method is cost-to-cost:

Percent complete = Costs incurred to date ÷ Total estimated costs

Then you convert that into revenue you’re allowed to recognize:

Earned revenue = Percent complete × Total contract price

A worked example on a $100,000 contract you estimated would cost $80,000:

• Costs incurred to date: $40,000
• Percent complete = 40,000 ÷ 80,000 = 50%
• Earned revenue = 50% × 100,000 = $50,000

So at this point you’ve earned $50,000 of revenue, regardless of how much you’ve invoiced. Notice the whole thing hinges on total estimated costs being realistic. If your estimate is stale, your percent-complete is wrong, and the entire WIP report lies in a confident voice. That’s the direct link between job costing and WIP: your budget-vs-actual tracking is what keeps the estimate honest.

3. Over-billing vs under-billing

Once you know earned revenue, compare it to amount billed to date. One of two things is true:

Overbilled — “billings in excess of costs and estimated earnings.” You’ve invoiced more than you’ve earned.

Overbilling = Amount billed − Earned revenue (when billed > earned)

Continuing the example: if you’ve billed $60,000 but earned $50,000, you’re $10,000 overbilled. That $10,000 is a liability — it’s the client’s money for work not yet done, not profit. Overbilling isn’t illegal or even unusual (front-loaded billing helps cash flow), but if you read it as profit and spend it, you’re borrowing from the job’s future. That’s exactly the trap in the case study above.

Underbilled — “costs and estimated earnings in excess of billings.” You’ve earned more than you’ve invoiced.

Underbilling = Earned revenue − Amount billed (when earned > billed)

If you’d earned $50,000 but only billed $40,000, you’re $10,000 underbilled — you’re financing $10,000 of the client’s project out of your own pocket. The fix is usually a billing-discipline problem: bill to your schedule of values on time. Chronic underbilling is a silent cash-flow killer.

Neither state is automatically “bad.” But a job swinging hard in either direction — especially overbilled jobs you’re treating as cash — is a flashing warning light.

4. How to read (and build) a WIP schedule

A WIP report is one row per open job with these columns. Build it in this order and it computes itself:

Read it like this:

• Estimated gross profit shrinking job-over-job (compared to last month’s WIP) means margin fade — your costs are creeping above the bid. This is the single most important trend on the report.
• Large overbilling = cash you must not treat as profit.
• Large underbilling = go invoice; you’re the bank.
• Percent complete > what you see on site = your cost estimate is probably too low (costs are running ahead of progress).

5. What WIP tells you that nothing else does

A profit-and-loss statement tells you what already happened, across the whole company, after the fact. A WIP report tells you, job by job and right now, whether each open project is on track and whether your cash is real. It’s the difference between an autopsy and a live monitor.

You don’t need to wait until you’re big enough for a controller. If you run fixed-price work, a monthly one-page WIP — even in a spreadsheet — will catch overbilling and margin fade while you can still act. The catch is that a WIP report is only as good as the cost data feeding it, which is why it sits on top of disciplined job costing and timely progress billing. Get those two right and the WIP report almost writes itself — and starts warning you before a job closes in the red.