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Calculating and Reducing Work in Progress (WIP): A Practical Guide

Work in progress is the least glamorous number in your firm — and one of the most important. It's the value of all the work you've delivered but haven't yet invoiced: money you've already "earned" that is still sitting in the client's bank account. A firm with €2 million in revenue and six weeks of WIP permanently has around €230,000 outstanding in work that hasn't even been invoiced yet — on top of regular receivables. Here's how to calculate it, and more importantly: how to bring it down.

The formula

WIP = value of work delivered − amount already invoiced (for that same work)

Per project, add up:

  1. Time-and-materials hours: logged (approved) hours × the agreed hourly rate, to the extent not yet invoiced.
  2. Fixed-price projects: progress × contract value, minus the installments already invoiced. A practical proxy for progress is hours spent divided by hours budgeted (capped at 100%).
  3. Subscriptions: periods delivered but not yet invoiced.

Then subtract the invoiced amounts per project. A negative result is possible: you've invoiced ahead of the work (prepaid installments) — in accounting terms that's not WIP but deferred revenue.

Worked example. Project "Website build": contract value €40,000, budgeted 400 hours, spent 250 hours → progress 62.5% → work delivered €25,000. Invoiced: kickoff invoice €12,000 + installment €8,000 = €20,000. WIP = €5,000. On top of that, 38 approved hours of additional work at €95 that aren't on an invoice yet: + €3,610. Total for this project: €8,610.

Why high WIP hurts

WIP is work you've pre-financed: you've already paid the salaries, and the money only comes in after invoicing plus the payment term. Every week of WIP is therefore an extra week of working capital you have to carry. On top of that, old WIP gets progressively harder to invoice — the rule of thumb from practice: the older the work in progress, the higher the odds of writing it off. Hours from three months ago invite debate from the client; hours from last week don't.

A healthy level is two to four weeks of revenue in WIP. If you're structurally above that, the leak is almost always one of the five causes below.

Five measures that reduce WIP structurally

1. Invoice monthly, without exception. The biggest WIP item is usually simply "not invoiced yet." A fixed monthly cycle in which draft invoices are prepared automatically — approved hours, due installments, subscriptions — takes weeks out of your WIP in one go.

2. Approve hours weekly. Hours waiting for approval can't go on an invoice. A weekly approval round instead of a monthly one takes an average of a week and a half out of the chain.

3. Split fixed prices into installments. A fixed fee without an installment schedule is guaranteed WIP: all the work sits outstanding until delivery. A kickoff amount plus monthly installments keeps invoicing and progress in step.

4. Invoice out-of-scope work immediately. Additional work that "rides along with the final settlement" is a double risk: it inflates WIP and the odds of a dispute. Invoice it separately and fast.

5. Make WIP visible per project lead. What nobody sees, grows. A dashboard that shows WIP per project and per owner — the way Horixa Insights calculates it in real time from hours, rates and invoices — turns it into a steering metric instead of a year-end surprise.

WIP in your accounts

For the annual accounts, WIP is typically valued at cost or, under conditions, in proportion to progress (percentage of completion); profit recognition on ongoing projects has its own rules, which vary by country and accounting standard. Align the valuation basis with your accountant — this article is about steering the business, not about financial reporting.

Frequently asked questions

Is WIP the same as accounts receivable? No. Receivables are invoices that have been sent but not paid; WIP is work delivered that hasn't even been invoiced yet. The full chain from work to cash is WIP plus your receivables term combined.

How often should I measure WIP? Monthly at a minimum, weekly if you're actively driving it down. With a system that combines hours, rates and invoices it's no longer a calculation — it's a dashboard.

What's a healthy WIP level for an agency? Two to four weeks of revenue. Above six weeks you're structurally financing your clients, and write-offs of old hours become likely.

Does non-billable work count toward WIP? No — internal hours have no invoice value. But do track them, or your progress on fixed-price projects will look better than it is.

Want WIP visible in real time instead of at year-end? Try Horixa free for 14 days — hours, installments and invoices in one system, with WIP and revenue per month in Insights.