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Billings in Excess of Costs
What is Billings in Excess of Costs?
Billings in excess of costs (also called overbillings) occur when you’ve invoiced your client for more work than you’ve actually completed or incurred costs for. In other words, it represents getting paid ahead of your work schedule.
Here’s how it works: If you’re a concrete subcontractor on a $100,000 job and you bill 50% upfront ($50,000) but have only completed $30,000 worth of work, that $20,000 difference is your billings in excess of costs. You owe your client that work, and until you complete it, that $20,000 remains as a liability on your balance sheet.
For subcontractors, understanding billing in excess of costs is essential because it can be a strategic cash flow tool when used carefully. For example, when bidding on a job, you can be smart about how you structure your schedule of values (SOV)—breaking work down into more detailed line items that allow earlier billing. However, this strategy requires regular monitoring to ensure:
- Your billing somewhat aligns with your actual percentage complete, and
- The remaining contract value will still cover your remaining costs.
The biggest risk of overbilling is thinking your margins look better than they are, simply because you’re collecting cash faster. Surety companies and lenders also scrutinize overbillings closely, as excessive amounts can signal poor project management or potential cash flow problems down the road.
With Siteline, you can easily track whether you’re billing in excess of your costs by pulling your month-to-month incurred costs and comparing them against your billing progress. This real-time visibility helps ensure you’re billing appropriately while maintaining realistic profitability expectations. If you’re interested in seeing for yourself, schedule a personalized demo of Siteline here.
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Other construction terms
What is Factoring?
Factoring in the construction industry refers to a financial service where a business sells its unpaid invoices, usually at a discount, to a third-party factoring company (the factor). This process provides the company with immediate cash flow to cover business expenses, like paying for supplies or labor wages. It's like a financial tool to keep up with the industry's fast pace where immediate payment is commonly required. The third-party factor then takes the responsibility to collect full payment from the customer. This method is particularly useful in the construction industry, where projects can be lengthy and cash flow stability is crucial.
What is an Office?
An office in the construction industry refers to a space, whether portable or fixed, utilized for administrative tasks such as managing construction plans, processing permits, overseeing contracts, and coordinating construction activities. It may be onsite or offsite, functioning as the hub for project management. Onsite offices, often seen in portable cabins or trailers, serve as the command center monitoring real-time construction progression. They store important documents, house communication devices, and serve as a meeting spot for employees and visiting clients. Offsite offices, on the other hand, handle larger administrative tasks such as project bidding, procurement, and capital management. Moreover, it acts as a central contact point for multiple construction sites. Both types of offices play a pivotal role in ensuring a smooth, sustainable, and efficient execution of construction projects.
What is a Lien?
A lien, particularly in the construction industry, is a legal claim or right that a contractor, sub-contractor, or supplier places on a property at which they have rendered services or supplied materials, but haven't been paid. Essentially, it's a security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. If the property owner does not fulfill the financial obligation, the lien holder may seek legal action to enforce their rights and might even result in the compulsory selling of the property to pay off the debt. Liens are crucial elements in construction law, ensuring parties are fairly compensated for their work and supplies provided.
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