What are Costs in Excess of Billings?

Costs in Excess of Billings (underbillings) is a concept used in the construction industry, referring to situations where contractors have incurred costs for a project, but have not yet billed the clients for these expenses. This somewhat common scenario can arise when the timing of job costs (labor, materials, subcontractors, etc.) outpaces the billing cycle or when costs have been incurred but the work has not reached a 'billable' stage. These underbillings are reflected on the financial statements as assets since they represent amounts that will be billed, and hence received, in the future. They require careful management to boost cash flow and profitability. As these situations involve real risks, contractors need to regularly monitor their Costs in Excess of Billings to maintain healthy business operations. This is paramount as these costs can have a substantial impact on a contractor's financial position and cash flows.