If you’ve been in construction for any length of time, you’ve seen a work-in-progress schedule. Your CPA prepares one every year, your bonding agent asks for one, and your banker probably wants an updated copy before renewing your line of credit. But for many contractors, the WIP schedule is one of those reports you glance at, trust your accountant got right, and move on from — without really using it.
That’s a missed opportunity. Your WIP schedule is arguably the single most important financial report your company produces. Once you know how to read it, it stops being a compliance exercise and starts being a tool you use to run the business.
What the WIP Schedule Is Actually Measuring
Construction contracts don’t fit neatly into a calendar year. A job might start in October and finish the following June, which makes it hard to know how much revenue you’ve actually earned at any given point. That’s the problem percentage-of-completion accounting solves.
Instead of recognizing revenue only when a project is finished, percentage-of-completion accounting recognizes revenue as the work gets done — roughly in proportion to the costs you’ve incurred compared to the total costs you expect the job to take. The WIP schedule is where that math happens, job by job, and it boils down to three numbers for every contract:
- Costs incurred to date — what you’ve actually spent on the job so far
- Billings to date — what you’ve invoiced the customer so far
- Earned revenue to date — what percentage-of-completion accounting says you’ve actually earned, based on the percent of the job that’s complete
When those three numbers line up neatly, everything is straightforward. When they don’t, that’s where over-billings and under-billings come in — and where the schedule starts telling you something worth paying attention to.
Over-Billings and Under-Billings: What They’re Telling You
An over-billing (formally, “billings in excess of costs and estimated earnings”) means you’ve invoiced the customer for more than the work is actually worth so far. A little bit of this is normal and even healthy — it means the job is helping fund itself rather than draining your cash. But a large or growing over-billing position across several jobs can be a warning sign that a project is falling behind schedule, costs are not being entered timely, or estimates are not accurate.
An under-billing (“costs and estimated earnings in excess of billings”) is the opposite: you’ve done more work than you’ve billed for. This ties up your cash in a job before you’ve been paid for it, which is exactly the kind of thing that turns a profitable project into a cash flow headache. Under-billings often creep in when billing paperwork lags behind the actual work, or when a contract’s billing schedule wasn’t set up to keep pace with the way costs are actually incurred.
Neither position is automatically good or bad — but a surety, banker, or you as the owner should always be able to explain why the number looks the way it does.
Why Consistency Matters More Than One Good Year
Here’s something that surprises a lot of owners: sureties care less about whether this year’s numbers look strong and more about whether your numbers have been consistent over time. A single great year on paper doesn’t mean much to an underwriter if the three years before it were volatile or hard to explain. What builds real bonding capacity is a track record of estimates that hold up — jobs that come in close to budget, WIP schedules that tell a believable story quarter after quarter, and financial statements that don’t require a lot of explaining.
That consistency doesn’t happen by accident. It comes from disciplined estimating and job costing practices carried out the same way, project after project.
Red Flags a Reviewer Will Notice
When your CPA, banker, or surety looks at your WIP schedule, a few patterns tend to catch their eye right away:
- Billing and cost overruns. When actual billings or costs exceed the estimated billings or costs you have an overrun. This makes it apparent the estimates have not been updated and each job likely needs attention.
- Contracts with no cost movement for several reporting periods. A job that’s been “in progress” for months with no new costs posted raises the question of whether it’s stalled, mis-scoped, or simply not being tracked.
- Large cost jumps late in a job. A project that looked fine at 80% complete and then takes a big cost hit near the end usually means the original estimate was too optimistic — and reviewers will want to know whether other active jobs have the same issue lurking.
- Estimated costs that never seem to change. If your projected total cost on a job looks identical every reporting period, it’s a sign the estimate isn’t being actively reviewed and updated as the work progresses.
WIP schedules are constantly changing and require attention so it should be expected to have follow-up questions that need to be addressed quickly as these issues slow down bonding decisions and financing approvals.
It All Starts with Job Costing
Here’s the piece that ties it all together: your WIP schedule is only as good as the job cost data feeding it. If costs are coded to the wrong job, posted late, or missing entirely, the percentage-of-completion calculation will be wrong no matter how carefully your CPA prepares the schedule. Accurate, timely job costing isn’t a separate exercise from your WIP schedule — it’s the foundation it’s built on.
If your job costing practices could use a tune-up, that’s a great place to start improving your WIP schedule, too.
Have questions about your WIP schedule or how your job costs are flowing into it? Reach out to Logan Kalis at John A. Knutson & Co., PLLP.