What is overbilling?
Overbilling is when you have billed a customer for more than the cost you have incurred on that job. It appears on a work in progress schedule as billings in excess of costs, and it is a liability rather than profit: the work is still owed.
It is a liability, not a profit
This is the point most often misunderstood. Money collected ahead of work performed sits in the bank and feels like margin, but it is an obligation. You have been paid for work you still have to do, and the cost of doing it is still in front of you.
On the balance sheet it is a liability, and any lender or surety reading your schedule treats it as one.
Why contractors do it deliberately
Front-loading a schedule of values, so early line items carry more value than they cost, is common and not inherently improper. It funds mobilization and smooths the cash curve on a job where costs land before revenue does.
It becomes a problem at scale. When a business is running on cash collected ahead of work performed across many jobs at once, it is described as job borrow: new jobs funding the completion of old ones. That works while volume is growing and stops abruptly when it is not, which is why heavily overbilled contractors are vulnerable precisely when the pipeline thins.
What underwriters look for
Two patterns draw attention. A high overbilling balance relative to working capital suggests the business may be dependent on advance billing to operate. And a job that swings from heavily overbilled to underbilled late in its life usually means the early billing was optimistic and the margin is fading.
Neither is disqualifying on its own. Both invite questions.