Understanding and Analyzing Contractor Financial Statements: Part I of II
Q: As an ABL lender would you consider holding Overbilling or Billings in Excess of Cost and Profits held Ineligible under the borrowing base?
A: Yes. In fact, only contracts receivable for completed projects signed off by the client should properly go into a borrowing base. Billings in Excess of Cost and Profits represents an obligation to be met in the future and not an existing asset.
In addition, contracts receivable on uncompleted contracts, or projects, is similar to work-in-process, which, again, should properly be excluded from a borrowing base.
Q: Is it normal to see zero dollars costs in excess of billings / billings in excess of costs on an interim statement?
A: No, it would not be normal to see no over or under billings on an interim Contract Status Report because at any given point in time during the construction period each project, with few if any exceptions, would be in either an over or under billing status.
All that would change in an interim Contract Status Report vis-à-vis a year-end Report, would be the date and the amount of over or under billings because each job in progress would be in one status or the other regarding billings at any given point in time.
Course overview: Understanding and Analyzing Contractor Financial Statements: Part I of II