Understanding "Costs in Excess of Billings" on Your Financials

Construction companies often struggle to make sense of their financial statements, especially when it comes to nuanced line items like “Costs in Excess of Billings.” But understanding this figure is key to getting a clear view of your company’s true financial health.

What Does “Costs in Excess of Billings” Mean?

This line item shows up on your balance sheet when your company has spent more on a project than it has billed the customer to date. In other words, you’ve performed work (and incurred costs), but haven’t sent the invoice yet.

It’s important to note: this doesn’t necessarily indicate a problem. Instead, it often reflects a timing issue between when work is done and when billing occurs. It might mean a delay in your billing cycle or that you’re frontloading work on a project.

Why It Matters

Understanding this number can help you identify potential cash flow issues before they arise. If the amount is growing month after month, you may be delivering work faster than you’re invoicing—tying up cash that could otherwise support operations or new projects.

This figure can also impact your bonding capacity and lender relationships. Sureties and banks tend to prefer a company that bills promptly and avoids significant work-in-progress (WIP) imbalances.

Red Flags to Watch

Consistently High Amounts: If this number is high across several projects, it might indicate billing delays, missed contract milestones, or poor project management.

Inaccurate Job Costing: If the numbers don’t reflect the actual progress of the job, you may be over- or underestimating both revenue and costs—leading to misleading financials.

Cash Flow Strain: You're paying vendors and labor before collecting from the client, which can lead to liquidity problems.

How to Manage It

Keep Job Schedules Updated: Regularly update percent-complete reports to accurately match project progress with billings.

Bill Promptly: Make sure your billing aligns closely with contractual milestones and completed work.

Review WIP Reports Monthly: Use these reports not just for accounting, but as a tool to spot problems early.

Train Project Managers: PMs should understand how their project decisions impact financial statements—not just job budgets.

The Bottom Line

“Costs in Excess of Billings” isn't just an accounting term—it’s a signal about your operational efficiency and billing discipline. Monitoring this number can improve your cash flow, strengthen relationships with lenders and bonding agents, and help you build a more financially sound business.