Category: Accounting

Construction Accounting: Unberbilling

Underbilling is the practice of neglecting to bill for the labor and materials that have been provided to the customer.

Underbilling is the practice of neglecting to bill for the labor and materials that have been provided to the customer. Underbillings should be rare in your business. A circumstance where you find yourself underbilling is when there is a dispute between the amount owed and the work performed, or if you’ve simply forgotten to send out an invoice for work performed. It is best practice to bill as soon as the work has been completed, stick to the agreed terms and any change orders.

Construction Accounting: Overbilling

Overbilling is when a contractor bills for labor and materials prior to work being completed.

Overbilling is when a contractor bills for labor and materials prior to work being completed. For example, a contractor might bill for 20% of the total contract value, when only 10% of the project has been completed.

The upside of overbilling

Overbilling is a strategy that is typically employed by contractors looking to improve cash flow by billing late-paying clients earlier. This way, they have more cash on hand to complete projects, start new projects before they get paid, and weather an unforeseen crisis.

The downside of overbilling

Overbilling can cause problems as well. If too much of contract’s value has been billed, and that money has been spent on other projects, it’s possible to run out of cash to complete the original project. This could cause the contractor to be cashflow negative at the end of the project, and will need to look elsewhere within the business to complete it.