General Inquiries

Managing Overbillings and Job Borrow

  • 1.  Managing Overbillings and Job Borrow

    Posted 11-22-2019 10:12
    I was hoping for some feedback on how others track over billings and job borrow.  I recently started at a small to medium size sub contractor with  significant overbillings and was wondering the best way to track this to make sure we do not run into a cash crunch later down the line.  I currently do I 5 week cash projection, would it be better to extend this to a 16week or are the other metrics that I should be monitoring? Any help or insight would be greatly appreciated.  Thanks and have a great Thanksgiving to everyone!


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    Steve
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  • 2.  RE: Managing Overbillings and Job Borrow

    Posted 11-25-2019 10:30
    Edited by Jason Wehby 11-25-2019 10:31
    Steve,
    Welcome to the blessing and curse of overbillings. We do our best to forecast cashflow for the next 18-24 months based on our backlog and pipeline of funded projects. The issues arise when delays on new starts coincide with closing out older jobs where the overbillings are turning the other direction. So, while long-term overbillings may seem manageable, very often the short-term "cash crunch" is difficult to forecast and manage.

    We are using the following metrics:
    • Remaining Cashflow/Avg Monthly Fixed Costs - how long can current pipeline/backlog sustain current business with no new jobs (ideally 20+)
    • Cash on hand/(Overbilled + O/S Line of Credit) - how much current liability is covered by cash on hand (ideally 1+)

    It's also important to note that overbilling is not necessarily equal to CASH "overcollected". We use actual project cash flow to determine a cash overcollected figure, which differs from the GAAP measure of overbilling. We use "overcollected" in place of overbilled in our second metric.

    Lastly, having a good finger on the pulse of the monthly cash flow is important, as overbillings can catch themselves up by the end of the project. Some PMs are very good at drawing out the full margin of a job in the first 50% and then breaking even for the next 50%. Every job and every PMs ability to overbill are different, so you truly must understand every job on an individual level.

    Best of luck.


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    Jason Wehby, CFO
    The Model Group
    Cincinnati, OH
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  • 3.  RE: Managing Overbillings and Job Borrow

    Posted 11-25-2019 11:47
    Maybe this is oversimplified, but I take into account all current liabilities when evaluating cash position - including the Contract Overbillings liability (unearned revenue).

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    Reba Stephens CPA
    Director of Finance & Accounting
    Ausland Group
    Grants Pass OR
    (541) 476-3788
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