Work in Progress (WIP) Accounting
Also known as: WIP, unbilled time and costs, work in process
Definition
Work in progress (WIP) accounting is the practice of tracking the dollar value of client work a professional services firm has already performed - hours logged plus billable expenses incurred - but has not yet invoiced. WIP sits on the balance sheet as an asset representing revenue the firm has earned but not yet turned into a receivable, and managing it closely is central to a firm's cash flow.
What sits in WIP
WIP balances accumulate as timekeepers log hours and disbursements against a matter or engagement, before that time is reviewed, approved, and turned into an invoice. Every unbilled hour a lawyer, accountant, or consultant records adds to WIP; every invoice that goes out converts that WIP into accounts receivable. A firm's total WIP balance is effectively revenue it has already earned but not yet asked the client to pay.
Why aging WIP is a warning sign
WIP that sits too long before being billed is a cash flow problem hiding as a balance sheet asset. The longer an engagement's WIP ages, the more likely it is to get written down at the billing review stage (because the client relationship makes an old, large invoice awkward to send), and the longer the firm's cash is tied up in work it has already done. Firms track WIP aging - how much unbilled value is 30, 60, or 90+ days old - as a leading indicator of both realization risk and cash flow pressure.
What keeps WIP healthy
Healthy WIP management comes down to two disciplines: capturing time accurately and close to when the work happens (so WIP reflects real value, not memory-reconstructed estimates), and billing on a predictable, disciplined cadence so WIP does not accumulate and age. Firms that struggle with WIP usually have a gap in one of those two disciplines - either the time was never captured well, or it was captured but nobody turned it into an invoice on time.
Frequently Asked Questions
What is the difference between WIP and accounts receivable?
WIP is work that has been performed but not yet invoiced - it is still inside the firm, not yet presented to the client as a bill. Accounts receivable is work that has been invoiced but not yet paid. WIP converts to accounts receivable the moment an invoice goes out, and accounts receivable converts to cash when the client pays.
Why does aging WIP get written down more often?
The longer unbilled time sits, the harder it is for a reviewer to remember or defend exactly what was done and why, and the more awkward a large, delayed invoice looks to a client. Firms with disciplined, frequent billing cycles tend to have less WIP aging and, as a result, better realization rates on the time they do bill.
How often should a firm bill to keep WIP under control?
There is no universal cadence - it depends on engagement type and client expectations - but the operating principle is consistency: bill on a predictable schedule rather than letting WIP accumulate until it becomes a large, uncomfortable invoice. Frequent, disciplined billing cycles are one of the most direct levers a firm has over both cash flow and realization.
Put this into practice
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