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Underbilling: Definition and Meaning
Definition
In construction, underbilling is a condition in which amounts billed to date are less than revenue recognized or work performed, subject to the company’s accounting method and contract terms.
Why It Matters
Underbilling can affect cash flow and working capital because the contractor may have performed work or incurred costs without billing the customer to the same extent. It can result from billing schedules, pending change orders, retainage, disputed amounts, administrative delays, or project conditions.
Underbilling should be evaluated with the project’s work-in-progress information, contract terms, billings, receivables, estimated costs, and management’s expectations for collection.
Example
A contractor has recognized $500,000 of revenue on a project but has billed $450,000. The $50,000 difference may be described as underbilling.
Related Terms
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