WIP, Unbilled Revenue, and the Cash Your Firm Already Earned
Work in progress is revenue you have earned and not yet invoiced. Most project firms carry far more of it than they realize. Here is how to measure WIP age, and how to shrink it.
The short answer
Work in progress, or WIP, is the value of billable work a firm has performed but not yet invoiced. It is measured by aging each unbilled dollar from the date the work was performed, and firms reduce it by shortening invoice review cycles, enforcing billing terms, and surfacing aged WIP weekly rather than at month-end close.
Key takeaways
- WIP is work you have already paid salaries to produce and have not yet asked anyone to pay you for.
- Days sales outstanding starts when you invoice. WIP age starts when the work happened, which is why DSO alone understates your true cash cycle.
- The full cycle to track is Work Performed to Invoice Sent to Cash Received. Most firms measure only the second half.
- Billing lag is usually a workflow problem, not a finance problem. The invoice is almost always waiting on a project manager, not on accounting.
- Cutting average billing lag from 21 days to 7 days on a $40M firm frees roughly $1.5M of working capital permanently.
Ask a project firm's CFO about receivables and you will get a precise answer within seconds. Ask about work in progress and the answer usually starts with an estimate and ends with a caveat about the month-end close. That asymmetry is expensive, because WIP is typically the larger number.
What WIP actually is
- Work in progress (WIP)
- The value of billable work performed but not yet invoiced. In a professional services context it is predominantly labor: hours worked, at their billable value, sitting between the timesheet and the invoice.
The reason WIP gets less attention than accounts receivable is structural. AR appears on the balance sheet, gets aged automatically by every accounting system, and has a collections process attached to it. WIP frequently sits in the project ERP, gets summarized once a month, and has no owner.
The full cash cycle, and the half most firms measure
Days sales outstanding is a fine metric that measures the wrong window. The clock starts at invoice date. Everything that happened before the invoice is invisible to it.
| Stage | Starts | Ends | Metric |
|---|---|---|---|
| Delivery to billing | Work performed | Invoice issued | WIP age / billing lag |
| Billing to collection | Invoice issued | Cash received | DSO |
| Full cycle | Work performed | Cash received | Total cash cycle |
A firm reporting a healthy 45 day DSO while carrying 24 days of average billing lag has a real cash cycle of 69 days. Leadership is managing to 45 and financing the other 24 out of the credit line without ever naming it.
How to age WIP correctly
Age each unbilled dollar from the date the work was performed, not from the date it was entered into the system and not from the project start. Then bucket it the same way you bucket AR so the two reports are readable side by side.
| Bucket | Unbilled value | Share | Typical cause |
|---|---|---|---|
| 0 to 30 days | $1,840,000 | 58% | Normal cycle, no action needed |
| 31 to 60 days | $720,000 | 23% | Invoice review sitting with the PM |
| 61 to 90 days | $390,000 | 12% | Milestone or client approval dispute |
| Over 90 days | $220,000 | 7% | Scope or change order disagreement, real write-down risk |
The over-90 bucket is the one that matters most, and not because of its size. Unbilled work older than 90 days is where realization goes to die. The longer the gap between doing the work and asking to be paid for it, the weaker your position when the client asks what exactly they are being billed for.
Why the invoice is late
In practice, billing lag concentrates in a small number of predictable places, and only one of them is finance's fault.
- 1Invoice review queues. Draft invoices wait for PM approval. A PM with fourteen active projects and a deadline reviews invoices last. This is the single largest contributor at most firms.
- 2Milestone ambiguity. Fixed-fee and milestone contracts require someone to assert the milestone was met. If nobody owns that assertion, the invoice waits indefinitely.
- 3Timesheet lateness. You cannot bill hours that have not been entered. A firm with 15 percent of timesheets submitted late has structurally delayed billing.
- 4Change order backlog. Work performed under a verbal approval cannot be invoiced until the change order is executed. Every week that paperwork sits is a week of WIP aging.
- 5Batch billing cycles. Firms that bill once a month add an average of fifteen days of lag by design. Semi-monthly cycles cut that in half for very little additional effort.
What fixing it is actually worth
The arithmetic is direct. Working capital tied up in WIP equals daily revenue multiplied by average billing lag.
Firm revenue $40,000,000 / year
Daily revenue $109,589
Current average billing lag 21 days -> $2,301,369 tied up in WIP
Target average billing lag 7 days -> $767,123 tied up in WIP
Working capital released $1,534,246 (permanent, not one-time)That is capital released permanently, not a one-time collection push. It funds hiring, absorbs a slow quarter, or simply removes the need for a line of credit that exists only to bridge your own billing delay.
The operating routine that keeps it down
- Make WIP aging visible weekly, by project manager, not monthly by office. Individual accountability moves this number. Aggregate reporting does not.
- Set an automatic escalation at 45 days. Unbilled work crossing 45 days notifies the PM and their principal, without anyone having to run a report.
- Move to semi-monthly billing cycles. This is the highest-leverage, lowest-effort change available to most firms.
- Track timesheet compliance as an operational metric with the same seriousness as utilization, because late time is delayed cash.
- Report the full cycle. Put Work Performed to Cash Received on the executive dashboard next to DSO so the hidden half of the cycle stops being hidden.
None of this requires new software in the accounting sense. It requires the timesheet, project setup, and billing data to be joined and refreshed nightly so the aging report exists without anyone assembling it. Once it exists, the routine above is a management decision rather than a data project.
Questions we get on this topic
What is the difference between WIP and accounts receivable?
WIP is work you have performed but not yet invoiced. Accounts receivable is work you have invoiced but not yet been paid for. WIP sits earlier in the cash cycle and is usually less visible, because most accounting systems age receivables automatically but leave unbilled work summarized only at month-end close.
How do you calculate WIP age?
Age each unbilled dollar from the date the work was performed rather than from the invoice date or the project start date, then bucket the totals in 30 day increments the same way you bucket AR aging. This produces a report that reads directly alongside your receivables aging.
What is a good billing lag for a professional services firm?
Seven to ten days from work performed to invoice issued is a strong target for firms billing semi-monthly. Many firms sit at 20 to 30 days, largely because draft invoices wait in project manager review queues rather than because of anything accounting controls.
Why does old WIP turn into write-downs?
Because the client's memory of the work fades. Billing a client for work performed four months ago invites scrutiny, disputes over scope that was never formally approved, and negotiated reductions. Invoicing close to the work protects realization as well as cash.
How much working capital can reducing billing lag free up?
Roughly daily revenue multiplied by the number of days of lag removed. A firm with $40M in annual revenue reducing average billing lag from 21 days to 7 days frees approximately $1.5M in working capital, and that release is permanent rather than a one-time collection.
Founder and CEO of VisualFlow Analytics. Former data analyst at Pratt & Whitney Canada, computer science and mathematics at McGill University. Leads technical delivery and client strategy across engineering, construction, and industrial data programs.