At some point, most growing contractors hit the same wall. You want to bid on a public project or a larger commercial job, and the owner requires a performance bond. Or your bank is reviewing your operating line and wants more than your year-end statements. Either way, someone asks for your work-in-progress schedule.
For a lot of contractors, the WIP is a spreadsheet the bookkeeper fills in once a year for the bonding agent. To a surety or a lender, it's one of the most important documents you hand over. Your financial statements show where the company has been. Your WIP shows whether you can estimate jobs accurately and manage them to completion, which is exactly the risk they're taking on.
What a WIP Schedule Actually Shows
A WIP schedule lists every job underway at a point in time, usually month-end or year-end, and answers one question for each: based on the work actually done, have we billed too much or too little?
For each job, it shows:
- Contract value, including approved change orders
- Estimated total cost, updated for what you know today, not what you bid
- Cost to date and the resulting percent complete
- Revenue earned to date: percent complete multiplied by contract value
- Billed to date, including holdback
- Over- or under-billing: the difference between what you've billed and what you've earned
Most Canadian private contractors report under ASPE using the percentage-of-completion method, and it's what sureties expect to see. Percent complete is usually measured cost-to-cost: costs incurred to date divided by total estimated costs. That's why the estimated total cost column matters so much. If it's stale, every other number on the schedule is wrong.
| Job | Contract | Est. cost | Cost to date | % done | Earned | Billed | Over / (under) |
|---|---|---|---|---|---|---|---|
| A: Commercial fit-out | 1,200 | 1,020 | 612 | 60% | 720 | 780 | 60 |
| B: Mechanical retrofit | 850 | 731 | 512 | 70% | 595 | 520 | (75) |
| C: Site servicing | 2,400 | 2,112 | 422 | 20% | 480 | 510 | 30 |
| Total | 4,450 | 3,863 | 1,546 | 1,795 | 1,810 | 15 |
Over-Billing and Under-Billing in Plain Language
Over-billed means you've invoiced more than the work done so far is worth. On your balance sheet, that's a liability: you owe the customer that work. Under-billed means you've done more work than you've invoiced. That's an asset, but it's one the customer hasn't agreed to pay yet.
Neither is automatically good or bad. Some over-billing is healthy, because it means the customer's money is financing the job instead of yours. The question a surety asks is whether the cash is actually there. If you're over-billed by $300,000 across your jobs but have $40,000 in the bank, you've already spent money that belongs to work you haven't done yet. That's how contractors get into trouble finishing jobs.
Under-billing gets more scrutiny. Sometimes it's just a billing lag because a progress draw went out late. But persistent under-billing is often a cost overrun that nobody has admitted yet. When costs run ahead of a stale estimate, percent complete inflates, earned revenue goes up with it, and a job that's over budget shows up on the WIP as under-billed instead.
What Your Surety Looks For
Bonding companies read your WIP alongside your financial statements to decide how much work they're comfortable backing. Many use a multiple of your adjusted working capital as a starting point for your bonding line, so anything that reduces working capital or makes your numbers harder to believe reduces your capacity. These are the issues that come up most.
1. Margin fade
Fade is when a job's estimated gross margin drops over its life. A job bid at 18% that's forecasting 15% at the halfway point and closes at 10% has faded eight points. One faded job is a bad job. A pattern of fade across your WIP tells a surety your estimates are consistently optimistic, and that the margins on today's open jobs probably are too.
Your year-end WIP shows a 16% average margin on open jobs. Your completed-jobs schedule shows last year's jobs were also forecasting 16% partway through but closed at an average of 11%. An underwriter will likely discount today's 16% to match your track record, and your bonding capacity follows.
2. Persistent under-billing
Because under-billings may hide overruns and haven't been invoiced, underwriters often discount them or leave them out of working capital entirely. Large or growing under-billings directly shrink your bonding capacity.
3. Over-billing without the cash to match
A healthy over-billing position should show up as cash in the bank. When it doesn't, the surety sees a company that's been using future work to pay for past work.
4. A WIP that doesn't tie to the financial statements
The totals on your WIP should match your financial statements: earned revenue and costs to the income statement, and the net over- or under-billing to the balance sheet. If they don't reconcile, the underwriter can't rely on either document. This is one of the most common problems we see, usually because the WIP lives in a spreadsheet that's never compared to the general ledger.
5. No completed-jobs history
Sureties want to see how your closed jobs actually turned out compared with how you estimated them. If you can show your estimates hold up, your current WIP becomes far more credible.
6. Stale or infrequent reporting
A WIP prepared once a year, weeks after year-end, says very little about where you are now. Contractors with growing bonding lines are often asked for quarterly WIP schedules, and a monthly WIP puts you in a much stronger position.
Using percent billed as percent complete. If percent complete is driven by what you've invoiced instead of costs incurred or work performed, your WIP will never show an over- or under-billing, and an experienced underwriter will spot it right away.
What Your Banker Looks For
Lenders read the WIP through a slightly different lens. They care about whether you'll stay within your covenants and whether your operating line is backed by real receivables.
- Covenants. Most commercial credit agreements include ratios such as working capital, debt-to-equity or debt service coverage. WIP adjustments flow straight into those calculations, so a large year-end adjustment for a faded job can push you offside a covenant you thought you were comfortably meeting.
- Borrowing base. If your line is margined against receivables, many lenders exclude holdbacks and older receivables from what you can borrow against. Under-billings don't count at all, because they haven't been invoiced. Contractors who bill late get less borrowing room at exactly the wrong time.
- Consistency. Like a surety, your banker wants reporting that arrives on time and doesn't swing wildly at year-end.
How to Keep Your WIP Bond-Ready
None of this requires sophisticated software. It takes a monthly routine that most contractors don't have time to build on their own.
- Update the estimated cost to complete on every job each month, with your project managers
- Get costs into the books promptly, including subcontractor invoices and accruals for work done but not yet billed to you
- Add change orders to contract value only once they're approved, and track pending ones separately
- Reconcile the WIP to the general ledger every month and book the over- and under-billing adjustment
- Review fade and gain on each job monthly, and find out why any margin moved
- Keep a completed-jobs schedule comparing estimated and final margin on every closed job
- Bill on schedule, so under-billings reflect real timing and not an admin backlog
When your WIP is updated monthly and ties to your books, the conversation with your surety changes. Instead of explaining surprises, you're showing a track record, and that's what earns a bigger bonding line.
At Full Cycle CPA, we build and maintain monthly WIP schedules for contractors, reconcile them to the books and prepare the interim reporting your surety and bank ask for. We work alongside your year-end accountant, so the numbers they see at year-end are the same ones you've been managing to all year. If you're heading into a bonding renewal or a credit review, let's talk.
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