When a contractor bills for more work than has actually been completed, collecting money ahead of their progress.
Overbilling occurs when a contractor bills the owner for a greater percentage of contract value than the percentage of work actually completed, resulting in a billing in excess of costs. It is the opposite of underbilling. While overbilling improves short-term cash flow, it creates a liability on the contractor's balance sheet and may indicate front-loading. Auditors and sureties watch for overbilling as a sign of financial distress.
Overbilling is the lever contractors use to fund the cash-flow gap between paying subs and suppliers and receiving owner payments, but it must be reconciled against true percent complete in the work-in-progress schedule. Sureties and lenders scrutinize the billings-in-excess figure on the balance sheet because heavy overbilling can mask thin backlog or borrowed-forward cash that leaves no margin to finish the job.
A GC bills 60% of the contract on its June pay application while the project is genuinely 45% complete, generating roughly $300,000 in billings in excess that the project controls manager flags in the WIP report for the surety review.
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