Author: Joe Leone, CPA, MSA, Partner

An underbilling on a WIP schedule can look straightforward, but the cause is not always what it seems. Sometimes billing simply needs to catch up. Other times, the issue may be tied to change orders, outdated estimates, the schedule of values, or a margin problem that needs closer attention.

Before reacting to the number, take a few minutes to understand what is driving it. These seven checks can help.

  • Diagnose before you dictate. “Underbilled” is a symptom with at least four possible causes. Find out which one you’re looking at before you decide what to do about it.
  • Rule out paperwork first. An unapproved change order with costs already paid is one of the easiest causes to fix — and one of the most common to overlook.
  • Trust the trend, not the original bid. If the estimate to complete hasn’t been updated in the last two or three periods, the “underbilling” may actually be a margin problem wearing a billing problem’s clothes.
  • Check the schedule of values against how costs really land. A schedule that front-loads too little income into the early phases can show a project as underbilled even when nothing is wrong with the job. The better fix may be on the next bid, not the current project.
  • Give your PMs the number, not just the schedule. A project manager who tracks margin and billing status alongside the project schedule can often spot a true underbilling weeks before it shows up in the monthly close.
  • Pull retainage out before you trust the margin. Earned revenue you cannot bill yet can make a thin job look healthier than it really is.
  • Review the list weekly, not monthly. Margin fade and billing lag can both hide in the gap between reviews. A five-minute weekly check can catch drift while there is still time to address it.

Know What the Number Is Telling You

Underbillings are worth attention, but they are not all created equal. The goal is not simply to bill faster — it is to understand what is driving the number so the response matches the actual issue.

Seeing underbillings you can’t quite explain? Contact Us to take a closer look at your WIP and what the numbers may be telling you.