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What is work in progress (WIP) in a professional services firm?
WIP is the value of work done for clients that has not yet been invoiced. It is usually calculated as recorded time multiplied by the billing rate (and expenses incurred) for the period, less amounts already billed.
It matters because WIP is earned revenue that has not yet turned into a debt owed to you. It sits between work and cash.
Commonly misread:
- Treating all WIP as collectable. Old WIP is often written down.
- Mixing recorded time at standard rates with value expected to be billed.
- Ignoring the age of WIP. A large balance that is mostly recent is different from one that is mostly old.
Report WIP by client, project and age. Days of WIP is WIP divided by average daily billing, which shows how long work waits before invoicing.
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