WIP Reports: The Report Your Banker Wants (And You Should Too)
Work-in-progress reports aren't just for bonding companies. They're the clearest view of where your money actually is. Here's how to read yours.
Ask most contractors about their WIP report and you'll get a blank stare—or a grimace. "That's the thing my bonding company makes me do."
Here's the thing: the WIP report is actually one of the most powerful financial tools you have. It tells you things your P&L can't. It shows you where cash is hiding. And yes, it's also what your banker and bonding company want to see because it tells them the truth about your jobs.
Let's break down what a WIP report actually shows you and why you should care.
What Is a WIP Report?
WIP stands for Work in Progress. The report compares three things for each active job:
- How much you've earned (based on percentage of completion)
- How much you've billed
- How much you've collected
The gaps between these numbers tell you everything about your cash position and job health.
The Key Concepts: Overbilled vs. Underbilled
Underbilled (Costs in Excess of Billings)
You've done more work than you've billed for. The job owes you money.
Example: You're 60% complete on a $100K job (earned $60K) but you've only billed $45K. You're underbilled by $15K.
What it means: You've got $15K in earned revenue sitting in the job that hasn't hit your bank account yet. This is cash you're owed but haven't asked for. If you're consistently underbilled across jobs, you're financing your customers' projects.
Overbilled (Billings in Excess of Costs)
You've billed more than you've earned. You owe the job work.
Example: You're 40% complete on a $100K job (earned $40K) but you've billed $55K. You're overbilled by $15K.
What it means: You've collected $15K for work you haven't done yet. That's not profit—it's a liability. You owe that work to the customer. If you're consistently overbilled, you might look cash-rich but you're actually spending tomorrow's money today.
Underbilled = the job owes you. Overbilled = you owe the job.
A Simple WIP Example
| Job | Contract | % Complete | Earned | Billed | Over/(Under) |
|---|---|---|---|---|---|
| Smith Remodel | $80,000 | 75% | $60,000 | $52,000 | ($8,000) |
| Johnson HVAC | $45,000 | 50% | $22,500 | $30,000 | $7,500 |
| Oak St Office | $120,000 | 30% | $36,000 | $24,000 | ($12,000) |
| Total | $245,000 | $118,500 | $106,000 | ($12,500) |
This contractor is net underbilled by $12,500. They've earned $118,500 but only billed $106,000. That's $12,500 in cash they could have already collected if they'd billed on time.
Why Your Banker Cares
When a bank looks at your WIP, they're checking:
- Are you consistently underbilled? If so, you have a billing discipline problem. Cash is tight because you're not asking for money you've earned.
- Are you heavily overbilled? If so, you might be using customer deposits to fund operations. That's risky—one job going sideways and you can't deliver what you've already been paid for.
- Is percentage complete realistic? Banks know that inflating completion percentages makes underbillings look smaller. They're watching for manipulation.
A clean WIP—billings roughly matching earnings across jobs—tells the bank you've got your act together.
Why YOU Should Care
Beyond keeping your banker happy, the WIP tells you:
Where Your Cash Is Hiding
If you're underbilled $50K across your jobs, that's $50K you could have in the bank right now. Bill it. Collect it.
Which Jobs Are Underwater
The WIP shows projected profit vs. original estimate. If a job's projected margin is tanking, you'll see it here before it shows up on your P&L.
Whether Your Estimates Are Accurate
Over time, WIP analysis shows you patterns. Do you consistently underestimate labor? Overestimate material? The WIP reveals your estimating blind spots.
How to Start Using WIP
If you're not running WIP reports today, here's how to start:
- List your active jobs. Contract value, estimated costs, estimated profit.
- Estimate completion percentage. Be honest. Use cost-to-complete as your guide.
- Compare earned vs. billed. Calculate the over/under for each job.
- Total it up. Are you net overbilled or underbilled? By how much?
- Take action. If underbilled, send invoices. If overbilled, don't spend that cash—you owe it back in labor.
Most accounting software for contractors (QuickBooks Contractor, Foundation, Sage) can generate WIP reports. If yours can't, a spreadsheet works.
The Bottom Line
The WIP report is the truth about your jobs. It shows you what you've earned, what you've billed, and where the gaps are.
Stop treating it as a chore for your bonding company. Start treating it as a tool to run your business. Review it monthly. Understand what it's telling you. Act on what you find.
Your P&L says you're profitable. Your WIP tells you where the money actually is.
Need Help Reading Your WIP?
Our Financial Health Assessment includes a complete WIP analysis. We'll show you exactly where cash is hiding and which jobs need attention.
Related Posts
