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By Travis Yule — CEO & Founder, Full Send Funding
Over-billing is borrowed cash that reverses. A contractor whose bank balance is explained by billings in excess has less money than they think.
A work-in-progress schedule is the single most revealing document a contractor produces, and most contractors treat it as an accounting chore performed once a year for the CPA. Sureties read it first. Banks read it before the tax return. Any funder who understands construction reads it before the bank statements.
It is worth understanding what they are reading, because a WIP schedule does something no other statement does: it shows whether your estimates hold up, and whether you are financing your customers or they are financing you.
A WIP schedule is one row per open job and, in its standard form, these columns:
Everything that follows comes out of those last two columns and the estimate that drives them.
Percent complete is a cost measure, not a physical progress measure. Under the cost-to-cost method it is simply the money you have spent divided by the money you expect to spend.
That has a consequence contractors are routinely caught by: buying material early makes a job look more complete than it is. Take delivery of $400,000 of switchgear in month two of a fifteen-month job and your cost-to-date jumps, percent complete jumps with it, and the schedule recognizes revenue and profit on work nobody has performed. The job has not advanced. Your WIP says it has.
Good practice is to exclude uninstalled materials from the percent-complete calculation until they are installed, or to recognize revenue on them only to the extent of cost with no margin. Whether your accountant does this is worth knowing before a surety asks.
The second consequence is subtler and more dangerous: percent complete is only as good as estimated cost to complete, and that is the one number on the schedule that is purely a judgement. A contractor who has not revised it since the bid is not producing a WIP schedule. They are producing a copy of the bid with costs added.
Over-billed — billings in excess — means you have invoiced more than you have earned. It sits on the balance sheet as a liability, because it is work you owe. Cash is in your account for work not yet performed.
Under-billed — costs in excess — means you have earned more than you have invoiced. It sits as an asset, and it means you have paid for labour and material that has not yet been billed to anybody.
Neither is inherently good or bad, and that is the part most often stated wrongly. What matters is why, whether it is deliberate, and which direction it moves between periods.
Over-billing is the closest thing construction has to free financing. Front-load the schedule of values, bill mobilization and stored materials, invoice at the start of a period rather than the end, and the customer funds your working capital instead of the other way round. This is legitimate and every good contractor does some of it.
The trap is what it does to the way the company reads its own health.
Over-billing is borrowed cash, not profit, and it reverses. A job that is over-billed today will be under-billed before it closes, because the billing eventually catches up with the work. A contractor whose bank balance looks comfortable because of a large over-billed position is holding money that belongs to future costs.
That produces one of the most common failure patterns in construction: a company grows, each new job is over-billed early, the aggregate over-billed position keeps rising, and cash looks fine. Then the growth slows. No new jobs arrive to over-bill, the existing ones run into their under-billed phase, and the cash position collapses while the P&L still looks profitable. The business did not fail because the last job went badly. It failed because it had been spending the customer's money for two years.
The diagnostic: compare your over-billed position to your cash balance. If most of your cash is explained by billings in excess, you have less of it than you think.
Consistent under-billing means the company is financing its customers, and it usually has a cause worth chasing:
That last one is why a lender reads under-billing alongside the margin trend rather than on its own. Under-billing caused by paperwork is a process problem. Under-billing caused by overrun is an economics problem, and only one of them is fixed with capital.
Fade is the decline in a job's gross margin from bid to completion, tracked job by job.
Illustrative, showing the pattern rather than any real contractor. A capital problem is solvable with capital; a fade problem is not — a surety caps capacity regardless of the balance sheet, because backlog priced at margins the company does not achieve is not worth what it says.
A single job that fades is ordinary — conditions change, and every contractor has one. A pattern of fade is a finding, and it is read as a statement about the company rather than about the jobs: either the estimating is optimistic, or the field cannot deliver what the estimate assumed, or change orders are not being captured and billed.
That distinction matters enormously to what happens next. A capital problem is solvable with capital. A fade problem is not: a surety will cap capacity regardless of the balance sheet, and a lender will discount the backlog, because backlog priced at margins the company does not achieve is not worth what it says.
The reverse pattern — margins improving late — draws its own scrutiny. It can mean conservative early estimating, which is fine. It can also mean profit being recognized before it is earned, which is not.
A funder looking at a construction file is triangulating three documents, and the WIP is what makes the other two legible:
A contractor showing healthy profit and thin cash is normal if the WIP shows a large under-billed position and growing backlog. The same profile with an over-billed position and shrinking backlog is a different file entirely — the profit is real but the cash was borrowed from customers and the source is drying up.
This is also why an accurate WIP is worth more to you than a flattering one. A schedule that overstates percent complete produces a P&L a funder will not be able to reconcile to the bank statements, and an unexplained gap is worse than a modest number.
Produce the schedule every month, with cost to complete revised by job. Track fade per job from bid to current estimate and look at the pattern rather than the worst example. Compare the aggregate over- or under-billed position to the cash balance and know which is explaining which. Separate under-billing caused by paperwork from under-billing caused by overrun, because only the first is a cash-timing problem.
Then, if there is a genuine timing gap — under-billed positions, retainage held, or a mobilization that must be funded before the first pay application — finance it knowing its shape. Construction working capital at Full Send Funding runs from $5,000 to $10 million on terms of four months to three years, underwritten on revenue and bank activity, with no UCC-1 lien filed against the business and no confession of judgment in the agreement. If you are bonded, the term matters more than the rate: see why your bonding capacity is a balance sheet question.
A WIP schedule shows whether your estimates hold and who is financing whom. Percent complete is a cost measure, so early material purchases inflate it, and the whole schedule rests on an estimated cost to complete that is a judgement rather than a fact. Over-billing is borrowed cash that reverses — a contractor whose cash is explained by billings in excess has less of it than they think, and that is how profitable companies fail when growth slows. Under-billing means you are financing customers, and its cause decides whether capital is the answer. Fade read across jobs is what a surety and a lender look at first, because a capital problem is fixable with capital and an estimating problem is not.
To talk through a specific position, call 518-312-0382 or check what you would qualify for — a minute, soft credit pull only.
This describes how percentage-of-completion accounting is generally applied in construction. Your CPA and your specific contracts control. Information, not accounting advice.
A work-in-progress schedule listing every open job with its contract value, approved change orders, estimated total cost, cost incurred to date, percent complete, revenue earned, amount billed, and the resulting over- or under-billed position. It is the document that reconciles a percentage-of-completion profit and loss statement to what actually happened to cash.
Over-billed — billings in excess of costs and estimated earnings — means you have invoiced more than you have earned, so it sits on the balance sheet as a liability. It is not bad; front-loading a schedule of values is legitimate and every good contractor does some of it. It is dangerous only when a company mistakes it for profit, because it reverses as the billing catches up with the work.
That you have earned more than you have invoiced, so you are financing the customer. The common causes are unapproved change orders, internal delay between the period closing and the invoice going out, retainage, and cost overrun. The first three are process problems and a timing gap; the last is an economics problem, and capital does not fix it.
Almost always by the cost-to-cost method: cost incurred to date divided by estimated total cost. Because it measures money spent rather than work performed, early material purchases inflate it. Best practice is to exclude uninstalled materials, or to recognize them at cost with no margin, until they are installed.
The decline in a job’s gross margin from bid to completion. One job that fades is ordinary. A pattern across jobs is read as a statement about the company — optimistic estimating, field execution that cannot deliver what the estimate assumed, or change orders not being captured and billed — and it caps bonding capacity in a way no balance sheet improvement will lift.
Because the profit and loss statement of a percentage-of-completion contractor is substantially an estimate, and the WIP is what makes it legible. Healthy profit with thin cash is normal if the schedule shows a large under-billed position and growing backlog; the same profile with an over-billed position and shrinking backlog is a very different file.
Monthly, with estimated cost to complete revised job by job with the project manager who actually knows. A schedule produced once a year for the CPA cannot tell you anything while you can still act on it, and an experienced surety can tell the difference immediately.
It is a supporting document rather than the collateral. An under-billed position, retainage held and mobilization yet to be billed are genuine timing gaps that capital can bridge. What a WIP cannot do is turn a fade problem into a fundable one — if the schedule shows margins declining consistently, the honest answer is that the estimating or the execution has to be fixed first.
Travis Yule founded Full Send Funding in 2021 and leads it from Middle Grove, New York. He writes about working capital from the underwriting side of the table — what the numbers actually have to say before a business gets funded.