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Overbilling: Definition and Meaning
Definition
In construction, overbilling is a condition in which amounts billed to date exceed revenue recognized or work performed, subject to the company’s accounting method and contract terms.
Why It Matters
Overbilling may improve current cash flow because the contractor has billed ahead of the work recognized. However, it should be evaluated with project status, billing schedules, customer expectations, contract requirements, retainage, and financial-reporting policies.
Overbilling is not automatically positive or negative. It may occur as a normal result of contract billing terms, but it requires accurate project information and careful management review.
Example
A contractor has billed $500,000 on a project but has recognized $450,000 of revenue under its reporting approach. The $50,000 difference may be described as overbilling.
Related Terms
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