Work in progress is work you have delivered or partly delivered but not yet invoiced. It matters because it is real value the agency is carrying at its own expense, and because unbilled work reliably becomes unbillable work as memories fade and relationships change. A rising or ageing WIP balance is one of the earliest signals of a cash problem, usually visible a month or two before the cash problem itself. Measure it monthly, age it in 30-day buckets, and treat anything over 60 days as at risk rather than as an asset.
Work in progress is the least discussed number in agency finance and one of the most predictive.
It sits in an awkward place: it is not revenue, because you have not invoiced it. It is not a cost, because you have already paid for it. It is value you have created and are holding, at your own expense, waiting to convert into cash.
Most agencies do not measure it. The ones that do tend to have discovered it the hard way - usually by finding, at the end of a quarter, that a substantial amount of delivered work was never billed and now cannot be.
This guide covers what WIP actually is, why it accumulates, how to measure and age it, what a healthy level looks like, and the specific practices that keep it small.
The number that sits between profit and cash
WIP is the missing link in most agency financial pictures. Revenue tells you what you billed, cash tells you what you collected, and WIP tells you what you delivered and have not yet asked to be paid for.
Without it you can be delivering strongly, look profitable, and be heading toward a cash squeeze that nothing in the accounts is showing yet.
What counts as WIP
Three things, and agencies usually track none of them systematically.
Time delivered but not invoiced. Hours logged against a project where the milestone has not been reached, or where the invoice has simply not been raised.
Completed deliverables awaiting a billing trigger. A phase finished on the 3rd, invoiced at month end - that is 28 days of WIP by design.
Approved out-of-scope work not yet billed. The most dangerous category, because it is the least documented and the most likely to evaporate.
Formally it is work performed with an expectation of payment that has not yet reached an invoice. Practically it is the gap between doing the work and asking for the money.
The two-day rule
Almost everything in this guide reduces to one habit: time entered within two days of the work happening. WIP calculated from timesheets filled in on Friday is a week behind reality by construction, and the reconstruction is always low - so the number understates the problem it exists to reveal.
Why it accumulates
Rarely one big oversight. Five ordinary things.
Billing on completion rather than milestones. A twelve-week project invoiced at the end carries twelve weeks of WIP by construction. Every hour of that is financed by you.
Late or approximate time entry. Time reconstructed on Friday from memory is both incomplete and slow to appear. Work delivered on Monday that reaches the system on Friday has spent five days invisible, and the reconstruction is always low. Our guide to time tracking for agencies covers getting this reliable without turning it into surveillance.
Out-of-scope work absorbed without a change order. Delivered, not documented, never billed. This is scope creep expressed as a balance-sheet problem rather than a margin one, and the fix is the same: a change order process small enough that using it is easier than absorbing the work.
Retainer overage nobody reconciled. Hours delivered beyond the allocation, discovered after the month closed. By then the client has moved on and it is very hard to bill. See retainer models for why visible burn prevents this.
Nobody owns invoicing. In many agencies raising invoices is a task that happens when someone remembers. It has no deadline, so it loses to work that does.
Why it matters more than it looks
Three distinct costs.
It is financing you did not agree to
Every pound of WIP is a pound you have paid out - in salaries, mostly - and not yet recovered. An agency with £80,000 of WIP has lent its clients £80,000, interest-free, without deciding to.
That is the direct link to the cash problem covered in our guide to agency cash flow. WIP is the mechanism by which a profitable agency runs out of money.
It decays
This is the part that surprises people. Unbilled work does not hold its value.
At two weeks, everyone remembers what it was for and the client expects the invoice. At three months, the person who requested it may have left, your contact does not recall approving it, and the internal budget it belonged to has closed. The work was real; the ability to bill for it was not preserved.
A rough and depressingly reliable pattern: work unbilled beyond 60 days is at material risk, and beyond 90 days a meaningful proportion will never be collected. Treat aged WIP as impaired rather than as an asset.
It hides the truth about a project
A project showing good margin because half its cost has not yet been invoiced is not showing good margin - it is showing an incomplete picture. Any project-level profitability analysis that ignores WIP flatters the projects that are worst at billing promptly, which is exactly backwards.
What it is not
WIP is not debt, and it is not revenue. It is work you have already paid for - in salaries, mostly - sitting in the gap between delivery and invoice. Treating it as an asset is optimistic; treating it as a queue you are financing is accurate.
Measuring it
The calculation is simple; the discipline is having the data.
WIP = (billable hours logged and not invoiced × billable rate) + (approved out-of-scope work not invoiced) + (delivered milestones not invoiced)
Two things make it possible:
Time entered close to when the work happened. Not necessarily daily, but within a couple of days. WIP calculated from a timesheet filled in on Friday is a week behind reality by definition.
Out-of-scope work recorded when agreed, not remembered later.
Age it
The total is much less useful than the distribution. Bucket it:
| Age | Status | Action |
|---|---|---|
| 0-30 days | Normal | Invoice on schedule |
| 31-60 days | Watch | Find out why it has not been billed |
| 61-90 days | At risk | Bill this week or write it off deliberately |
| 90+ days | Likely lost | Decide, and stop carrying it as an asset |
The aged view is what makes WIP actionable. A total of £60,000 is neutral information. £60,000 of which £22,000 is over 60 days old is a problem with a specific location.
Compare against yourself
There is no universal benchmark for WIP, because it depends entirely on how often you bill. Your own trend over three months is worth more than any published figure.
What is healthy
There is no universal benchmark, because it depends on billing frequency. A useful way to frame it:
WIP days = (WIP balance ÷ annual revenue) × 365
Monthly billing implies a structural average of around 15 days simply from the cycle. So:
- Under 20 days: healthy for monthly billing.
- 20-35 days: normal, worth watching.
- Over 35 days: something is systematically delaying billing.
- Rising over three months: the important signal, regardless of the level. It means you are delivering faster than you are billing, and the gap compounds.
The trend matters more than the absolute figure. A stable 25 days is fine; 15 rising to 28 over a quarter is an early warning of a cash squeeze that has not arrived yet.
Reducing it
In order of impact.
Bill on milestones, not on completion
The largest single change. Splitting a twelve-week project into four billing milestones roughly quarters the average WIP it generates.
Tie milestones to deliverables rather than dates so the trigger is unambiguous - "on delivery of the design phase" leaves nothing to argue about.
Invoice on a fixed schedule with a named owner
Most WIP is not a dispute, it is an unraised invoice. Fix a date - the 1st and 15th, or every Friday - and give one person responsibility. This alone typically removes a week of average WIP.
Bill retainer overage in the month it happens
Overage discovered after month end is much harder to collect and considerably more awkward. Visible burn during the month makes it a conversation on the 18th rather than a surprise on the 3rd.
Capture out-of-scope work at the point of agreement
A change order raised when the work is agreed is an invoice waiting to happen. The same work remembered six weeks later is a negotiation you will probably lose.
Enter time within two days
Not a productivity measure - a billing one. Time that is not in the system cannot be invoiced, and time reconstructed later is systematically understated. This is the constraint that makes everything else above possible.
Review the aged report monthly
Fifteen minutes. Anything over 60 days gets a decision: bill it, write it off, or explain why it is still legitimately in progress. The point is that it becomes a decision rather than a drift.
Who should own WIP
The reason WIP accumulates is almost never disagreement about whether it matters. It is that nobody is accountable for the specific act of turning delivered work into an invoice.
Three ownership questions worth answering explicitly:
Who raises invoices, and on what schedule? One named person, fixed dates. Not "the account lead when the milestone completes", because account leads are busy at exactly the moments milestones complete.
Who reviews the aged report? Whoever can actually act on it - usually whoever owns the client relationship, since most aged WIP needs a conversation rather than an administrative step.
Who decides a write-off? It should be a decision someone makes, with a reason recorded, not something that happens through inaction. Set a threshold above which it needs sign-off.
The relationship between WIP and trust
An underrated dimension: prompt billing is a signal of competence, and clients read it that way.
An invoice arriving two weeks after a milestone, matching the agreed amount, itemised the way the scope described, tells a client the agency is well run. An invoice arriving eleven weeks later, for work they half remember, covering items they need to reconstruct, does the opposite - and it invites scrutiny that a prompt invoice never attracts.
This is the practical argument against the instinct to delay billing while a relationship is delicate. Agencies frequently hold an invoice because a project has been bumpy and it feels like a bad moment to ask for money. The delay almost always makes it worse: the work becomes harder to substantiate, and the eventual invoice arrives with no context attached to it.
Bill on schedule, every time, and handle the relationship issue as its own conversation. Our guide to difficult client conversations covers separating the two.
The monthly WIP review
Fifteen minutes, alongside the rest of the financial review.
Pull the aged report. Total, and the four age buckets.
Look at the trend first. Three months of direction matters more than this month's number.
Take a decision on everything over 60 days. Bill it, write it off, or record why it is legitimately still in progress. The point is that it becomes a decision rather than a drift.
Note the reasons. Over a few months a pattern emerges - one client, one service line, one person's projects - and the pattern is the actionable finding rather than the balance.
When to write it off
Sometimes the honest answer is that work will not be billed. Writing it off deliberately is better than carrying it indefinitely, for two reasons: it stops the balance sheet lying to you, and it forces the question of why it happened.
Write off when the work was genuinely out of scope and never approved, when the client relationship would suffer more than the invoice is worth, or when it is simply too old to substantiate.
Do it explicitly and record the reason. A pattern in write-off reasons is one of the most useful diagnostic datasets an agency can have - it will point at one client, one service line, or one part of your process with uncomfortable consistency.
What not to do is leave it in the balance indefinitely because writing it off feels like an admission. Aged WIP carried forward is a slowly worsening fiction, and it distorts every margin calculation that depends on it.
A worked example
Concrete numbers, because WIP is easier to understand as arithmetic than as a concept.
A six-person agency, £500,000 annual revenue, billing monthly in arrears at 30-day terms.
Structural WIP from the billing cycle alone. Work delivered on the 1st is invoiced on the 30th - 29 days of WIP. Work delivered on the 29th is invoiced the next day. Average across the month: roughly 15 days. At £500,000 annual revenue that is about £20,500 permanently outstanding as a function of the cycle, before anything goes wrong.
Add late time entry. If time reaches the system an average of four days after the work, add four days: £5,500.
Add unbilled out-of-scope work. If 8% of delivered work is absorbed and never invoiced, that is £40,000 a year - and unlike the rest, this portion never converts. It is not WIP, it is a write-off that has not been recognised yet.
Add a slow month. One month where invoicing slips by two weeks adds another £10,000 temporarily.
The instructive part is the proportions. The billing cycle is unavoidable and manageable. Late time entry is a four-day fix. The absorbed scope is by far the largest number and it is the one that never appears on any report, because work that was never logged as billable does not show up as unbilled.
Splitting the project into four billing milestones would take the structural 15 days down to roughly 4, releasing about £15,000 of working capital permanently - which for an agency of that size is a meaningful buffer, obtained by changing a contract clause rather than by selling anything.
How it connects to everything else
WIP sits at the intersection of three problems agencies usually treat separately.
It is a cash problem, because WIP is unrecovered cost. It is a margin problem, because unbilled work is delivered work with no revenue against it - the same thing realisation rate measures from the other direction, covered in agency utilization rate. And it is a process problem, because almost every pound of it traces to a specific operational gap: late time entry, missing change orders, unreconciled overage, or an invoice nobody raised.
Which is why it is such a useful number to watch. It does not just tell you that something is wrong - the aged report tells you fairly precisely where.
The invoicing routine that keeps it low
Most WIP reduction comes from one operational change: making invoicing a scheduled routine rather than an event that happens when someone remembers.
Fix the dates. The 1st and the 15th, or every Friday. Not "at milestone completion", because milestones complete on days when the person who would invoice is busy delivering the next thing.
Name one owner. Invoicing that belongs to everyone belongs to nobody. One person, with the authority to raise invoices without checking each one.
Prepare a standing list. Before each invoicing date, a short check: which milestones completed, which retainers renew, which change orders were approved, which time is billable and unbilled. Ten minutes, and it catches the things that would otherwise wait a fortnight.
Invoice small amounts too. Agencies frequently hold a small invoice back to combine it with the next one, which is administratively tidy and adds a month of WIP to work already delivered. Send it.
Never delay an invoice because the relationship is delicate. The instinct is understandable and it makes things worse - the work becomes harder to substantiate and the eventual invoice arrives with no context. Bill on schedule and handle the relationship issue as its own conversation.
What to tell clients about it
A small piece of framing that removes most billing friction before it starts.
Set the invoicing rhythm at kickoff. "We invoice on the 1st for the previous month" or "we invoice at each milestone, and here are the milestones." A client who knows when invoices arrive processes them faster than one who is surprised by each.
Explain milestone billing as their protection, not yours. It is true: milestone billing means they pay for delivered work in stages rather than committing everything up front, and it gives them a natural checkpoint. Framed that way it is an easy conversation rather than a request.
Ask about their process, not just their terms. Who approves, whether a purchase order is needed, when their payment runs happen. A missing PO number is the single most common reason an invoice sits untouched for six weeks with nobody flagging it, and it takes one question at the start to prevent.
The summary
Measure WIP monthly. Age it in 30-day buckets. Watch the trend more than the level.
Reduce it by billing on milestones, invoicing on a fixed schedule with a named owner, capturing out-of-scope work when it is agreed, and getting time entered within two days.
And treat anything over 60 days as at risk rather than as money you have. The work was real, and that is precisely why it is worth the fifteen minutes a month to make sure it turns into revenue rather than into a lesson.