Over billing happens when you’ve billed the owner for more than you’ve earned based on percent complete. On the balance sheet it’s a current liability, commonly labeled “billings in excess of costs and estimated earnings” (contract liabilities under ASC 606). The formula is simple: billed to date minus earned revenue. A positive result is over billing.
Why it matters
Some over billing is normal and even healthy: front-loaded schedules of values and early mobilization can put cash ahead of cost. But over billing is cash you owe back in work. If a company spends that cash on overhead or other jobs, it has to finance the remaining work later. Large or growing over billings can also signal a cost forecast that hasn’t caught up, which is how fade hides.
Worked example
Illustrative: Riverside Medical Center has a $49.3M contract and an estimated total cost of $43.68M. Cost to date is $31.7M, so the job is 72.6% complete and earned revenue is $35.78M. Billed to date is $37.2M.
Over billing = $37.2M minus $35.78M = $1.42M.
Common mistakes
- Treating over billing as profit, or as free cash.
- Front-loading the schedule of values so aggressively that the owner’s reviewer starts rejecting pay apps.
- Not asking why it grew. An over billing jump can mean the cost estimate is too low, not that billing is strong.
How os.construction handles it
We’re building over and under billing to update from live cost, forecast and billing data, with the drivers visible per job instead of buried in a month-end spreadsheet.