AGÕæÈËÓÎÏ·

An estimate within the construction industry pertains to a broad calculation or assessment made on the basis of limited information. It's an approximate judgment of the value, quantity, or extent of something that relates specifically to construction works. Construction estimates are crucial for project planning, as they provide a projected financial outlook of the project. This enables contractors and clients to determine feasibility, allocate budgets, and plan resources accordingly. Estimates often take into account labor costs, materials, equipment, and potential risks. They may be revised as more details about the project are made available or if unforeseen circumstances occur. It's worth noting that accuracy in construction estimates equates to better project management and financial control.

Cost in excess of billings (CEB), or underbilling, refers to a cost incurred by a subcontractor for work performed that has yet to be billed to the general contractor at any point in time. This is a somewhat common scenario that can arise when the cost of work expenses (labor, materials, subcontractors, etc.) hit before billings go out.

There are a few factors that can create this timing gap and lead to underbilling. These include:

• Progressive billing schedules: Many construction projects have billing schedules that are based on predefined milestones or stages of completion. However, costs are being incurred continuously as work progresses. This causes costs to build up ahead of invoices between billing cycles.
• Upfront and early-stage mobilization: Significant upfront costs go into things like materials, equipment, permitting, and mobilizing job sites before physical work even begins—especially for subcontractors. These costs typically accumulate before clients are billed.
• Pending change orders: Costs related to change orders often hit weeks or months before details are finalized and approved for billing. Diligently tracking pending change orders is crucial to ensure you ultimately collect on all revenue owed from approved changes.
• Project delays: In construction, delays are inevitable. If and when delays push out project milestones, billable events can slide further out from when the costs were incurred. These timeline gaps widen the difference between accrued expenses and billings-to-date.

CEB is reflected on financial statements as assets because it represents an unbilled receivable for revenues that will later come. Therefore, regularly monitoring CEB is critical to maintaining healthy business operations as it helps subcontractor accounting teams:

• Understand true project economics: CEB helps reveal the full profitability picture by linking incurred costs with unbilled receivables, which in turn supports more accurate revenue forecasting and job costing projections.
• Gain greater cash flow visibility: Because CEB tracking shows how much money is flowing out that’s tied up in work completed but not yet paid for, it helps them better plan and manage their cash for future expenses.
• Monitor project health: Unexpected CEB spikes could signal problems like cost overruns. Regularly comparing CEB status with the original budget is key to assessing a project’s overall health.
• Collect revenue in full: No one wants to work for free. Tracking CEB ensures that all pending receivables are ultimately invoiced and collected.
• Stay compliant: CEB reporting is required for percentage-of-completion revenue recognition, which is an important accounting standard for billing teams to adhere to.

Effective CEB oversight is much simpler with the right tools in place. With Siteline, you can easily see on each project if you’re billing in excess of your costs to ensure you’re billing enough each month. Siteline also monitors all pending change orders throughout a project’s lifespan, helping teams get approval quicker for accelerated cash flow. If you're interested, schedule a personalized demo of Siteline here.

The Receivables Turnover Ratio (RTR) in the construction industry is a critical financial metric that measures the efficiency with which a construction company can collect from its clients. This ratio indicates the number of times a company's accounts receivables are collected, or "turned over," during a specific period. It is calculated by dividing the company's net credit sales by its average accounts receivable. A higher RTR implies that the company collects its receivables more frequently, indicating efficiency in its credit and collection processes. On the other hand, a lower RTR suggests that the firm needs to revisit its credit policy as its customers may be delaying payments, which could impact cash flow - a vital aspect in the construction business.