Sixty-two thousand dollars of revenue existed in one report and not in another. Both reports were produced by the same company in the same month.
Nothing had been stolen and nothing had been miscounted. Percentage-of-completion revenue and recorded revenue had simply drifted, and no step in the close process was designed to notice.
Key Takeaways
- Your WIP schedule and your income statement have never been formally reconciled
- You forecast cash monthly and make payroll decisions weekly
- Costs arrive after the period they belong to and get booked when they show up
- You can describe your backlog but not when it converts to cash
What Is a Construction WIP Schedule Supposed to Do?
A WIP schedule reconciles what you have earned against what you have billed, job by job, so that over- and under-billing become visible before a job closes. That is its entire purpose, and it fails when it becomes a report rather than a control.
The difference is whether anything is required to agree. A WIP schedule that sits beside the income statement is a document. A WIP schedule that must tie to it every month is a control, because the tie-out is what forces errors to surface on a schedule instead of at year end.
It is worth being precise about who the schedule serves, because contractors often build it for the wrong audience. A WIP schedule assembled primarily to satisfy a surety or a lender will be technically correct and operationally useless — produced late, reviewed once, and filed. A WIP schedule built to run the business happens earlier, gets argued about, and occasionally gets sent back. The second version usually satisfies the surety anyway. The first version rarely improves the business.
Why Does WIP Not Tie to the Income Statement?
Usually because cost coding and revenue recognition are maintained by different people on different clocks, and nothing sits between them.
One commercial contractor carried a gap of roughly $62,000 between percentage-of-completion revenue and recorded revenue. The gap was not large relative to the business. It was significant because it had gone unnoticed — which meant the mechanism that should have caught it did not exist, and a larger gap would have gone unnoticed the same way.
The same company had about $184,000 of cost sitting unassigned to individual jobs, inflating reported year-to-date gross margin to roughly 48 percent against a true figure closer to 36. For scale, CFMA's Construction Financial Benchmarker reported all-respondent gross profit at 21.8 percent. A contractor reporting 48 percent is not an outlier performer; they are reading a broken instrument.
How Do You Handle Costs That Arrive Late?
With an accrual method that runs on a schedule rather than on arrival. Subcontractor invoices, fuel, and equipment charges routinely land after the period they belong to, and booking them when they appear pushes cost into a month that did not incur it.
One energy services contractor used a disciplined accrue-and-reverse approach for exactly this: estimate the missing cost, book it to the job in the correct period, reverse it when the real invoice arrives. The method is unremarkable. What makes it work is that it is applied consistently rather than when someone remembers.
The same company found that per-unit cost had to include freight, service, and other charges to be meaningful at all — a reminder that a cost that is technically recorded somewhere is not the same as a cost that has reached the job.
How Do You Build a 13-Week Cash Forecast for a Construction Company?
Start from committed outflows, not from expected receipts, because outflows are the reliable half. Payroll, debt service, and known subcontractor obligations are knowable weeks ahead; collections are not.
One contractor's forecast showed receipts of roughly $40,000 against a projected weekly cash decrease of about $48,000. That is a decision-grade output. It does not require precision to be useful — it requires enough accuracy to tell you which week the line crosses.
The horizon matters. Thirteen weeks is long enough to see a problem developing and short enough that the inputs are still real. Beyond that you are forecasting the backlog, which is a different exercise with different confidence.
Build it weekly rather than monthly, and build it in a form somebody actually opens. The most common reason a thirteen-week forecast stops working is not modeling error — it is that maintaining it became a task nobody owned after the initial build. A forecast that is roughly right and updated every Monday beats a precise one that was accurate in April.
Treat the first four weeks and the last nine differently. The near weeks are mostly commitments and should be close to exact. The later weeks are estimates, and presenting them with the same apparent confidence as the near weeks trains everyone to discount the whole document.
How Does Backlog Convert to Cash?
Not on the schedule most owners assume, and the gap between assumed and actual is where working capital disappears.
A restoration contractor projecting roughly $1.078 million of job closures across three weeks found that only about half of it was actually billable in that window. Separately, about $164,000 of work dated to the month had only $36,000 invoiced against it — roughly $130,000 of billable work sitting unconverted, held up largely by inspection assignment delays rather than anything financial.
That is the pattern worth internalizing: backlog does not become cash on completion. It becomes cash on billing, and billing is gated by operational steps that finance usually does not control and often does not measure.
The practical response is to measure the gate rather than complain about it. If billing waits on inspection assignment, then inspection assignment is a financial metric and should be reported as one — average days from work-complete to inspection-scheduled, tracked weekly. Framing an operational bottleneck in cash terms is usually what gets it prioritized, because it converts a scheduling annoyance into a number the owner recognizes.
Is Overbilling Good or Bad?
Neither, on its own. Overbilling means you have billed ahead of work performed, which improves current cash and creates a future obligation. It is a financing position, not a performance result, and reading it as profit is one of the more common misinterpretations of a WIP schedule.
The risk is that overbilling masks a deteriorating job. A project that is comfortably overbilled can be running well over cost, and the cash position stays healthy right up until the billing runs out and the remaining work still has to be performed. That is the sequence that produces the surprise loss on an apparently fine job.
Underbilling is the mirror image and is usually the more urgent of the two, because it is an interest-free loan to the customer that nobody decided to extend. Both positions are worth reviewing every month as trends rather than as single-month readings — the direction of travel carries more information than the level.
What Should a Contractor Fix First?
The tie-out, before anything else. A cash forecast built on a WIP schedule that does not reconcile is a confident wrong answer, and confident wrong answers are more dangerous than no forecast at all because people act on them.
The order that works: test whether cost is landing on the right jobs, then reconcile WIP to the income statement monthly, then install a method for late cost, then build the thirteen-week forecast. Each step depends on the one before it. Skipping to the forecast is the most common mistake and the most expensive one.
One caution on sequencing: resist the urge to rebuild the chart of accounts first. It feels like the foundational move and it is usually a detour. Most contractors do not have a chart-of-accounts problem; they have a coding-discipline problem, and a new structure applied to the same habits produces the same errors in tidier categories.
If you want the scope of what this looks like as an ongoing engagement, our page on construction-specific CFO work covers it.
Your Next Step
A Forecast Built on an Unreconciled WIP Is a Confident Wrong Answer
The tie-out comes first, and it is a days-long test rather than a system rebuild. Everything downstream — forecasting, bidding, capacity — inherits whatever that test finds.
Common Questions
Frequently Asked Questions
How Often Should a Construction WIP Schedule Be Reconciled?
Monthly, and it must actually tie to the income statement rather than sit alongside it. A schedule produced on cadence but never reconciled will drift, and the drift compounds silently until a job closes materially away from where it was reported.
What Causes Underbilling on a Construction Job?
Most often a lag between work performed and work billed, driven by approval or documentation steps rather than by disagreement with the customer. Underbilling is effectively an interest-free loan to the owner, and it rarely appears as a problem until cash gets tight.
What Is a 13-Week Cash Forecast?
A rolling weekly projection of receipts and disbursements over roughly one quarter. Thirteen weeks is the working standard because it is long enough to reveal a developing shortfall and short enough that the underlying commitments are still concrete rather than speculative.
How Do You Account for Costs That Arrive After Period End?
Accrue an estimate to the correct period and reverse it when the actual invoice arrives. Applied consistently, this keeps job cost in the month that incurred it. Applied occasionally, it introduces a different distortion than the one it was meant to fix.
Why Is My Gross Margin Higher Than Industry Benchmarks?
Frequently because cost has not been fully assigned to jobs rather than because performance is exceptional. When a reported figure sits far above published industry benchmarks, the first hypothesis should be a coding gap, not outperformance.
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