EVERY ACTIVE JOB IS EITHER OVERBILLED OR UNDERBILLED.
A WIP schedule shows the financial status of every active job at a point in time. The line that decides how you sleep is the one comparing what you should have billed to what you did bill.
WIP stands for work in progress, and a WIP schedule is a report showing the financial status of every active job at a point in time: total contract value, cost to date, percent complete, revenue recognized on that completion percentage, and what has been billed. Every subcontractor needs one because the comparison between what should have been billed and what was billed is what tells you whether a job is overbilled or underbilled, and the P&L doesn't carry that comparison anywhere. If you're 60 percent done on a $1M job, your P&L recognizes $600,000 in revenue even if you have only collected $400,000. That $200,000 difference is real money you've earned and are owed, and it's also money that's not in your bank account. Underbilling is the more dangerous of the two conditions, because cash is going out faster than it's coming in, and if you're underbilled across multiple active jobs at the same time the cash pressure compounds fast.
Bonding companies and banks want the same report for a reason they state differently. A receivables number on a construction balance sheet can't be assessed without WIP, because there's no other way to tell a receivable backed by work performed and billed from an overbilled position that's going to reverse before the job closes.
This post is the case for running the schedule in the first place. Read The Construction WIP Schedule Hub for the complete treatment, worked figures included.
WHAT WIP STANDS FOR AND WHAT IT TRACKS.
WIP stands for work in progress. A WIP schedule is a report that shows the financial status of every active job at a point in time, and for each job it shows five things:
The comparison between what should have been billed and what was billed is where it gets interesting, and it tells you more than most subcontractors realize.
OVERBILLING AND UNDERBILLING, WHAT EACH ONE MEANS.
Overbilling means you've collected more from the GC than the percentage of work you've completed justifies. You billed for 40 percent of the contract and you have only done 30 percent of the work. You're ahead on billing relative to the work in place.
Overbilling isn't necessarily bad. Front-loading your schedule of values to recover mobilization costs creates a temporary overbilled position that's entirely intentional and legitimate. But persistent overbilling across a job that's not front-loaded can indicate a problem, because you're collecting cash now that you haven't earned yet, and you'll have to catch up with real costs later.
Underbilling means the opposite. You've completed more work than you've billed for: 50 percent of the job done, 35 percent of the contract value billed. You're behind on collecting what you've earned.
Underbilling is the more dangerous condition for most subcontractors. It means cash is going out faster than it's coming in, and your bank account is being drained by costs you've incurred and haven't yet billed. If you're underbilled across multiple active jobs at the same time, the cash pressure compounds fast.
WHY YOUR P&L DOES NOT SHOW YOU THIS.
The profit and loss statement shows revenue and expenses over a period of time. It tells you the company made money or lost money. What it doesn't tell you is whether that revenue number is real.
Here is the problem. In construction, revenue gets recognized based on percentage of completion, not based on when the check clears. If you're 60 percent done on a $1M job, your P&L recognizes $600,000 in revenue even if you have only collected $400,000.
That $200,000 difference between recognized revenue and collected cash is real, and it's money you've earned and are owed. It's also money that's not in your bank account. If you're underbilled, your P&L looks better than your bank account, and if you're overbilled, your P&L looks worse than your bank account, temporarily.
Without a WIP schedule, you can't see any of this. You're looking at revenue numbers on a P&L that may or may not reflect what's happening on the active jobs. The WIP schedule is what makes it visible.
WHAT THE SCHEDULE CAUGHT ON TWO JOBS OUT OF SIX.
A $7M civil subcontractor we work with was running six active jobs when we started building WIP schedules for them. The P&L looked reasonable, and the margins were within range of what was expected. The WIP schedule told a different story on two of the six jobs.
Job 1 was 65 percent complete but only 48 percent billed. They had $180,000 in unbilled earned revenue sitting there because billing hadn't kept pace with the work. Nobody had caught it because nobody was looking at percent complete relative to billing position.
Job 2 was overbilled, 40 percent billed against 28 percent complete. That's not necessarily a problem if it was intentional front-loading, and in this case it wasn't. The billing had been aggressive early and now costs were catching up, so by the end of the job they would be showing a lower billing position than real costs, which would hurt their cash position at closeout.
We addressed both. The underbilled job got a catch-up billing on the next pay app, and the overbilled job got a revised cost-to-complete estimate so we could understand whether it was going to close at the expected margin. Without the WIP schedule, neither of these would have been visible until the jobs were done.
WHY BONDING COMPANIES AND BANKS CARE SO MUCH.
Lenders and bonding companies aren't asking for your WIP schedule to be bureaucratic. They're asking for it because it's the only way to assess whether your financial statements are accurate.
A balance sheet for a construction company can show a healthy receivables number, and without WIP there's no way to know whether those receivables are real. Are they backed by work performed and billed? Or are they overbilled positions that will reverse before the job closes?
A bonding company underwriting $5M in bonds on your behalf needs to know the difference. If your receivables are real and your WIP shows you're properly billed relative to completion, they will extend capacity. If your WIP shows persistent underbilling or jobs in loss positions, they're looking at a different risk picture.
For a $7M civil subcontractor trying to bond jobs over $3M, clean WIP reporting isn't optional. It's the difference between getting the bond and not getting it.
HOW TO BUILD A BASIC WIP SCHEDULE.
You need four things for each active job, and three of the four come straight out of records you already keep:
From those four numbers you can calculate percent complete, revenue earned, and the overbilled or underbilled position.
WHERE MOST WIP SCHEDULES FALL APART.
The arithmetic isn't the hard part. Percent complete is costs to date divided by total estimated costs, revenue earned is percent complete times contract value, and the overbilled or underbilled position is billings to date minus revenue earned. Any spreadsheet can do that much.
The estimated cost to complete is where most WIP schedules fall apart. If the PM is optimistic, assuming the job will close at budget when it's clearly running over, the whole WIP schedule is misleading. The cost-to-complete estimate has to be honest, updated monthly, and based on what's happening on the job.
HOW OFTEN TO UPDATE THE WIP SCHEDULE.
Monthly, every billing cycle. The WIP schedule should be updated every time a pay app goes out so the billing position is current, and the cost-to-complete estimate should be revisited by the PM monthly, not just at project closeout.
For subcontractors running multiple large jobs at the same time, a monthly WIP review with the PM team is one of the highest-value meetings you can have. It surfaces underbilling to catch up, it identifies jobs developing cost overruns before it's too late to act, and it gives the owner a real picture of financial exposure across the entire portfolio.
THE BOTTOM LINE ON WIP.
A WIP schedule isn't just a document you produce for your banker. It's a management tool that shows you whether your active jobs are performing the way you think they are.
If you're underbilled, you need to catch up before cash runs out. If you're overbilled, you need to understand whether costs are coming. If a job's cost-to-complete estimate says it's heading for a loss, you need to know now, not at closeout.
The subcontractors who manage WIP actively don't get surprised at job closeout. They see the problems developing in month two or three, when there's still time to do something about it. That's the whole point.
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