Contractor Finance Glossary
What is Overbilling and Underbilling?
Also called: over and under billing, billings in excess, costs in excess
Overbilling is invoicing more than the work completed to date; underbilling is invoicing less. On a WIP schedule, it is the difference between the amount billed and the earned revenue (percent complete times contract value).
Overbilling (billings in excess of costs) is cash-positive now but a balance-sheet liability: it is customer money for work you still owe, and spending it as profit risks running out of cash before the job finishes. Underbilling (costs in excess of billings) means you have done work you have not invoiced, so you are financing the customer with your own cash.
Both are invisible without a WIP schedule, and both are where growing project contractors lose control of cash. Surety bonders and lenders read the over/under billing position first, because it reveals whether a contractor is borrowing against unearned work or leaving earned cash on the table.
How it is calculated
Earned revenue = percent complete (cost to date divided by estimated cost) times contract value. Over/under billing = amount billed to date minus earned revenue. Positive = overbilled; negative = underbilled.
Want these numbers for your own company?
Get a free profit audit. We connect your field ops and finance and show where your crew's time turns into margin, and where cash is stuck. Free audit included.
No commitment. Real numbers, not generic advice.