Work in progress (OHW) refers to work that has already been performed but not yet fully completed or invoiced. It plays an important role in project management and financial accounting, as it provides insight into what your organisation has already delivered without yet receiving revenue.
In companies where projects and cost centres are central, such as in construction, consultancy or creative industries, tracking OHW helps monitor progress and provide insight into the financial status of a project.
The Key Links: projects and cost centres
Projects are temporary goals with a specific scope, timeline and budget. During a project, work is often hourly or results-based, meaning that costs are incurred continuously. Work not yet completed or invoiced falls under OHW.
Cost centres, on the other hand, are internal categories that companies use to allocate costs to specific departments, teams or projects. Linking OHW to cost centres makes it easier to track expenses, labour and revenue. This not only helps with transparent invoicing, but also with accurate accounting.
How to register OHW
Recording OHW starts with accurate timekeeping of the hours employees spend on a project. Using a time recording system can help with this, as it collects data on who worked on a task, when and for how long.
Besides timekeeping, it is important to keep careful track of all costs. This includes both direct costs, such as materials and subcontractors, and indirect costs, such as overheads. These costs are allocated to the corresponding cost centre and form part of the OHW.
It is then essential to evaluate the status of OHW at periodic financial reports, such as monthly or quarterly closures. This involves looking at costs realised and work already delivered but yet to be invoiced.
Invoicing of Work in Progress
There are different ways to invoice work in progress, depending on the agreements with clients and the nature of the project. Large projects often use partial invoices based on a milestone or a percentage of total delivery. This ensures regular cash flow and reduces the risk of non-payment at the end of a project.
Some companies choose to invoice on an after-the-fact basis, where the OHW is calculated and invoiced at the end of a period. Depending on the agreement, billing may be based on a fixed amount. This amount is calculated as a percentage of the completed work. It could also be calculated as a variable amount. Then the actual costs incurred will be charged.
It is crucial to make clear agreements with customers about when and how billing takes place. For example, through a contract with payment schedules or conditions.
The Financial Link: OHW and Result
Work in progress affects both the balance sheet and the income statement. On the balance sheet, OHW is often recognised as an asset. This is done because it represents a right to receive income in the future.
On the income statement, it is recorded as revenue once a project or part of it has been invoiced. Evaluating OHW regularly helps a company monitor both liquidity and profitability and make timely adjustments when necessary.
Summary and Practical Tips
OHW is an essential tool for understanding project progress, monitoring budgets and linking expenditure to cost centres. Using project management and accounting software or TriFact365 can simplify this process and support automatic calculations.
Drawing up clear agreements with customers on invoicing ensures transparency and prevents misunderstandings. By regularly analysing the status of OHW and adjusting processes where necessary, you not only work on better project control. At the same time, you work on a healthier financial basis for your organisation.
