Two contractors can have the exact same bank balance and be in completely different financial positions — one healthy, one heading for trouble. The difference shows up in a number most contractors never look at: over/underbilling.
Here's the mechanic. On a job with progress billing, you invoice (or draw against a construction loan) based on percentage of completion — the percentage of total estimated cost you've actually incurred so far, applied to the contract price. If you're 40% done with the work, you should have billed roughly 40% of the contract.
Overbilled (billed in excess of costs): You've invoiced more than the work performed justifies. That cash sitting in your account isn't all profit — some of it is really an advance against work you haven't done yet, tracked as a liability (Billings in Excess of Costs). Spend it like it's already earned and you can end up "cash rich, profit poor": flush with cash mid-project, then scrambling to cover costs on the back half of the job because the money's already gone.
Underbilled (costs in excess of billings): You've put more into the job than you've invoiced for. That gap is an asset (Costs in Excess of Billings), but in practice it means you're floating the client's project with your own cash — buying materials and paying subs before you've been paid for that portion of the work. Do this on multiple jobs at once and you can run out of working capital even while every job is technically profitable on paper.
The fix is a WIP (work-in-progress) schedule, updated at least monthly, comparing billings to date against percentage of completion for every open job. It's the single clearest early-warning system a contractor has for cash flow trouble before it becomes a crisis.
If you've never looked at a WIP schedule for your jobs, that's a conversation worth having. Send us a message.
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