What is Top-of-Chain or High-Tier?

Credit in the construction industry refers to the financial trust extended to a company or contractor, enabling them to procure goods or services with the understanding that they will pay for these in the future, typically with added interest. Credit is instrumental in this industry, as it often involves huge capital investments upfront, long before the revenue from the completed project is realized. A company's creditworthiness or ability to repay, is a determining factor in receiving credit. Construction companies frequently use lines of credit for purchasing equipment, hiring labor, buying supplies, and meeting emergency expenses. Moreover, credit facilitates smooth cash flow, allowing construction projects to progress without financial hiccups.

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.

A cost overrun, in the context of the construction industry, refers to the excess amount that needs to be spent over the initially agreed or budgeted cost for completing a particular project. It’s an unanticipated increase in costs that occurs due to various factors such as inaccurate estimation, changes in project scope, unforeseen challenges, or increase in material or labor costs. In essence, it’s when the actual cost of the project exceeds the estimated cost. It is critical to manage and minimize cost overruns as they can seriously impact the overall profitability and success of a construction project. Effective project management, regular monitoring, vigilant control measures, and contingency planning are some strategies to mitigate such cost overruns in construction projects.