Academy
What is a WIP schedule, and why does your surety read it first?
The one-sentence version
Your P&L says you made money when you sent invoices. The WIP schedule says you made money when you did the work. The difference between the two is sitting on your balance sheet as either over-billings (a liability: cash you collected for work not done) or under-billings (an asset: work you did and have not yet billed).
The columns, in order
| Column | What it means | Where it comes from |
|---|---|---|
| Contract value | Original contract plus approved change orders | Signed contract and change order log |
| Estimated total cost | What the job will cost when finished | Original estimate, updated by the PM monthly |
| Cost to date | Costs posted to the job so far | The job cost ledger, including committed cost where used |
| Percent complete | Cost to date divided by estimated total cost | Calculated |
| Earned revenue | Contract value times percent complete | Calculated |
| Billed to date | Pay applications issued | AR |
| Over / (under) billings | Billed minus earned | Calculated |
| Estimated gross profit | Contract value minus estimated total cost | Calculated; watch it move month to month |
A worked example
A $1,240,000 tenant improvement job. Estimated total cost $980,000. Cost to date $607,600. That is 62% complete, so earned revenue is $768,800. You have billed $812,000. You are over-billed by $43,200: you have collected $43,200 for work you have not done yet. That money is in your bank account and it is not yours. Three jobs like that and the bank balance looks healthy while the company is actually behind.
Now the opposite. A clinic job, $886,000 contract, 41% complete, earned $363,300, billed $301,000. Under-billed by $62,300. That is your cash sitting in the owner's account. Bill it on the next pay application.
Why the surety and the bank read it first
A surety sets your bonding capacity on working capital and on whether your profit is real. Under-billings count toward working capital only if they are documented. Over-billings are a liability. Profit fade (estimated gross profit dropping from 22% to 17% between months) is the single most watched line, because it means the estimate was wrong or the change orders are not in. A bank reads the same schedule to size a line of credit. If the schedule shows up once a year when the CPA builds it, both of them assume the worst in between.
How often it should be done
Monthly, by a controller, reconciled to the ledger. The PM updates cost to complete; the controller ties cost to date to the job cost ledger, checks change orders against the contract value, and signs off. ProvenCFO's construction controller package includes the WIP schedule every month, with the over and under billing entries posted so the P&L is on percentage of completion year round.
The three mistakes we see most
- Change orders built but not in the contract value. Earned revenue is understated, the job looks under-billed, and the margin fades at closeout.
- Cost to complete never updated. Percent complete is a fiction, so everything downstream is too.
- Retainage ignored. Retainage receivable is earned revenue you cannot touch yet; it belongs on the balance sheet and in the cash forecast.
Questions people ask
What is the difference between over-billing and under-billing?
Over-billing means you have invoiced more than you have earned; it is a liability (billings in excess of costs and estimated earnings). Under-billing means you have earned more than you have invoiced; it is an asset (costs and estimated earnings in excess of billings). Both are normal; what matters is that they are documented and trending the right way.
Do I need a WIP schedule if I use QuickBooks?
Yes. QuickBooks Online does not produce one. The job cost data comes from QuickBooks; the schedule is built from it monthly and the over and under billing entries are posted back.
What is percentage of completion?
A revenue recognition method where revenue is recognized as a job progresses, measured by cost incurred over total estimated cost. It is the standard for contractors with jobs longer than a month and the basis of the WIP schedule.
How much does it cost to have a WIP schedule done monthly?
At ProvenCFO it is part of the controller level, from $1,000 a month on top of bookkeeping. A CPA building one once a year for a review typically charges more than that for the one schedule.
Written by the people at ProvenCFO who do the work: fractional CFOs, controllers and bookkeepers for American owner-led companies.
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