YOUR P&L IS LYING TO YOU. HERE IS WHY.
Overbilling happens when you have billed more than the percentage of work actually completed. Underbilling happens when you have completed more work than you have billed. Both distort the P&L. Overbilling makes profit look higher than it is. Underbilling makes profit look lower. Neither reflects the actual performance of the projects. SPM reconciles WIP monthly so the financial statements reflect what the business is actually doing, not billing timing.
Most subcontractors look at their P&L and wonder why it does not match how the jobs feel. The answer is usually in the WIP. A $200K overbilling position can make a mediocre month look like a great one. A $200K underbilling position can make a great month look like a disaster.
Overbilling and Underbilling Explained.
Overbilling — You Billed Ahead of the Work
Overbilling occurs when the amount billed to date exceeds the percentage of the project that is actually complete. If a job is 40% complete but you have billed 60% of the contract value, you are overbilled by 20 points. That extra billing shows up as revenue on the P&L. But the work to earn it has not been done yet. You will still have to spend the labor, materials, and equipment to complete that portion of the job. Overbilling makes current-period profit look higher than it actually is and will reverse in future periods as the costs come in without matching revenue.
Underbilling — You Worked Ahead of the Billing
Underbilling occurs when the percentage of the project completed exceeds the amount billed. If a job is 70% complete but only 50% has been billed, you have $X in earned revenue sitting on the job that has not hit your invoice or your P&L. The costs have been incurred. The revenue has not been recognized. This makes the P&L look worse than the underlying project performance justifies. Underbilling is also an AR problem — money that should be in the billing cycle is still sitting on the job.
Why It Matters More Than You Think
On a portfolio of 6 active jobs, overbilling and underbilling positions can offset each other and create a false picture of profitability. A business with $400K in overbilling and $180K in underbilling has a net $220K WIP position that is inflating reported profit. The P&L shows margins that do not reflect the actual financial health of the active work. Banks, sureties, and anyone doing a financial review will ask for the WIP schedule specifically because it corrects for this distortion.
Monthly WIP Reconciliation as Standard Practice.
SPM reconciles the WIP schedule on every active job every month. The reconciliation takes the percentage complete from the field, calculates what revenue should be recognized based on actual completion, compares it to what has been billed, and adjusts the accounting accordingly. The P&L after reconciliation reflects what the business is actually earning, not what the billing timing says.
WHERE WIP DISTORTION COMES FROM.
Concrete: Material Front-Loading
A $200K ready-mix buy makes a cost-to-cost job look 40% complete when the labor is 15% done — instant phantom overbilling on the books even when the billing is honest. Stored-material adjustments or labor-based percent complete keep the WIP telling the truth through big pour months.
Civil: The Quantity Gap
Unit-price civil distorts when billed quantities and field quantities drift apart — billing off plan quantities while the field moves 15% more dirt creates silent underbilling that looks like a bad month instead of an unsubmitted claim. One quantity source of truth, reconciled monthly, closes the gap.
Electrical: The Closeout Underbill
Electrical jobs sit at 92% complete for months while punch, trim-out, and testing burn labor — costs accruing with nothing left on the SOV to bill against. The long tail is structural underbilling, and it's where electrical margins quietly drown without honest cost-to-complete updates.
All Trades: GC-Approved Front-Loading
Front-loaded SOVs are normal and smart — mobilization money matters. The distortion comes from forgetting it's there: a sub overbilled $400K thinks it's having a great year right up until the work catches up to the billing and the cash stops while the payroll doesn't.
