Unbilled work is fee your firm has earned but hasn't invoiced yet: hours logged since the last bill, phase progress beyond what you've billed, and consultant or reimbursable costs not yet billed back. A cash-basis P&L can't see it, so the fix is a monthly report showing each project's fee, earned, billed, unbilled and unpaid. Whether it also goes on your balance sheet depends on the reporting basis you and your CPA choose.
What counts as unbilled work
Design firm software often calls it WIP, short for work in progress. The idea is the same: the value of work your team has done that hasn't made it onto an invoice. It comes from three places.
- Hourly work not yet billed. Time logged since the last invoice, valued at the billing rates in the contract.
- Phase progress beyond what you've billed. On a fixed fee, the share of each phase that's done, minus what you've already invoiced for it.
- Pass-through costs not yet billed back. Consultant bills and reimbursables the contract lets you charge to the client, but that haven't gone on an invoice yet.
Unbilled work is not the same as receivables. Accounts receivable is what you've invoiced and are waiting to collect. Unbilled work hasn't been invoiced at all, so the client hasn't been asked for it yet. Both are money the firm has earned and doesn't have yet.
A retainer works the other way. Cash collected up front isn't earned yet, so on accrual books it sits as a liability until you apply it to an invoice.
Why a cash-basis P&L hides it
On a cash basis, revenue shows up when a client pays. A month of heavy design work with few invoices sent looks slow, and a month when three old invoices get paid looks great. Neither tells you how much work the firm actually did.
The bigger risk is a billing backlog nobody sees. When unbilled work isn't reported, invoices can slide a month or two, and the older work gets, the harder it is to bill and collect. Often the first sign is a cash squeeze, long after it could have been caught.
How each type of work becomes an unbilled number
Percent-complete phase billing. For fixed-fee work billed by phase, earned fee is the phase fee times percent complete. Your project manager sets percent complete, ideally from an honest look at what's left rather than from hours spent. Unbilled is earned fee minus what's been invoiced for that phase.
Hourly work. For hourly and not-to-exceed contracts, unbilled is the time logged since the last invoice at contract billing rates. Watch the cap. Time past a not-to-exceed limit usually can't be billed without an approved change, so it shouldn't count as unbilled.
Where the data lives. Time, billing rates and phase fees live in your project software, whether that's BQE Core, Deltek Ajera or Monograph. Each one can show work performed against what's been invoiced, and that's the starting point for the report. The books should agree with it.
A worked example: the monthly unbilled report
Say a small firm has three active projects at month end. The library renovation is a $120,000 fixed fee split by phase: $15,000 schematic design, $25,000 design development, $50,000 construction documents, $5,000 bidding and $25,000 construction administration. The first two phases are done and billed. Last month's invoice billed construction documents at 20 percent, or $10,000. This month the project manager puts construction documents at 40 percent, so another $10,000 is earned but not yet billed.
The office fit-out is hourly with a $40,000 not-to-exceed. The team has logged $15,000 of time at billing rates, and $9,000 of it has been invoiced. The site survey was a $10,000 lump sum, finished and billed, but that invoice is 75 days old. The other open invoices are less than 30 days old.
| Project | Fee | Earned | Billed | Unbilled | Unpaid |
|---|---|---|---|---|---|
| Library renovation (fixed fee) | $120,000 | $60,000 | $50,000 | $10,000 | $20,000 |
| Office fit-out (hourly, not-to-exceed) | $40,000 | $15,000 | $9,000 | $6,000 | $9,000 |
| Site survey (lump sum) | $10,000 | $10,000 | $10,000 | $0 | $10,000, 75 days |
| Total | $170,000 | $85,000 | $69,000 | $16,000 | $39,000 |
Read the total line. The firm has done $85,000 of work on these projects, invoiced $69,000 and collected $30,000. A cash-basis P&L only knows about the $30,000. The other $55,000 is real work: $16,000 waiting to be invoiced and $39,000 waiting to be paid, $10,000 of it already past 60 days.
The report also points to next steps: send the library and fit-out invoices, follow up on the survey, and check how much room is left under the fit-out's cap. It's the report we build into bookkeeping for architects and engineers every month.
One caution on fixed fees. If the library team has logged $70,000 of time at billing rates but the project is only half done, the extra $10,000 isn't unbilled work. It's an overrun you can't invoice, and the report should show it that way rather than inflate unbilled.
Where consultants and reimbursables fit
Consultant costs work one of two ways, depending on your contract. If the structural or MEP engineer is carried inside your fee, their bill is a project cost that comes out of that project's margin. If the contract lets you bill consultants and reimbursables back to the client, often with a markup, anything you've incurred but not yet billed belongs in unbilled.
Say your contract lets you bill consultants at cost plus 10 percent, and the structural engineer sends an $8,000 bill. Until you invoice the client $8,800, that $8,800 is unbilled, and the engineer's $8,000 is due on its own schedule. Code each consultant bill and reimbursable to its project, and code what you bill back to the same project. Then you can see, project by project, whether every pass-through cost was billed and whether the markup covered the time it took to manage.
Many design firms also watch net fees: total fees minus consultant and reimbursable costs. That's the part of revenue your own staff earned, and it's a fairer number to compare against payroll.
Common mistakes
- Counting hours instead of progress on fixed fees. Logged time at billing rates overstates what you can bill when a project runs over.
- Leaving consultant bills in general expenses. The cost never reaches the project, so nobody notices it was never billed back.
- Forgetting small reimbursables. Printing, travel and permit fees paid on a card sit in the books but never make it onto an invoice.
- Letting the books and project software drift. An invoice edited or voided in one place but not the other throws off both reports.
Accrual vs. cash for management reports
Accrual reporting records fees when they're billed or earned, not when the check arrives, which is why project-based firms often prefer it for management reports. Some firms go a step further and record unbilled work as an asset at month end with an adjusting entry, reversed the next month when the invoice goes out. Then the monthly P&L reflects the work the firm actually did.
Your tax basis is a separate decision, and it's your CPA's call. A firm can run management reports on one basis and report for taxes on another. Our guide to cash vs. accrual accounting covers how the two differ.
What to review each month
- An unbilled report by project, pulled from your project software as of month end
- Fee, earned, billed, unbilled and unpaid for every active project
- AR aging by client, with anything past 60 days flagged
- Consultant bills and reimbursables matched to projects and to what you billed back
- Fixed-fee projects where time logged has run past fee earned
- Invoices and payments in QuickBooks Online that match your project software
The same report helps your CPA at year end, especially if they need unbilled work and receivables as of a set date.
How we handle unbilled work
Our A&E firm bookkeeping is set up around how design firms bill: by phase, by the hour or on a fixed fee. We work from BQE Core, Ajera or Monograph so your books and project reports agree, match consultant bills to projects and report unbilled work next to receivables every month.
We don't set percent complete. That stays with your project managers. Our job is making sure the invoice, the payment and the project report all agree. IT firms billing project hours run into the same gap, and so do other project-based firms. Our professional services bookkeeping page shows how the approach carries over.
Common questions
Is unbilled work the same as WIP?
At most design firms, yes. Project software built for architects and engineers often uses WIP to mean work performed that hasn't been invoiced. In construction, WIP usually refers to a schedule of over- and underbilling on contracts, so it helps to know which one someone means.
Should unbilled work go on my balance sheet?
On accrual management reports, it's often recorded as an asset, sometimes called unbilled receivables, with a month-end adjusting entry. On cash-basis books it doesn't appear at all, which is why a separate report matters. How it's handled for taxes is your CPA's call, and we keep the books on whatever basis you and your CPA choose.
Who decides percent complete on a phase?
Your project manager or principal, since they know how much of the phase is really done. We don't set it. We record each phase invoice against its project and make sure the invoice, the payment and the project report agree.
Why doesn't my P&L match my project software?
Usually it's timing or basis. A cash-basis P&L counts payments, while project software counts billings or earned fees. Gaps also come from invoices or payments entered in one system but not the other, and retainers not yet applied. We reconcile the two monthly so every difference has a reason.
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