A busy building site can still lose money. Costs creep up, payments arrive late and retentions sit unpaid for months. Strong job costing for builders solves most of these problems. This guide covers progress claims and retentions explained in plain English, plus WIP tracking and cash flow tips that give you clear visibility over every project.
- Give every project its own job code and split costs into clear categories.
- Track retentions as a receivable and diarise every release date.
- Update your WIP schedule monthly to catch underbilling and overbilling.
- Lodge your TPAR with the ATO, usually by 28 August.
- Run a rolling 12-week cash flow forecast and update it weekly.
Why Job Costing for Builders Matters
Construction businesses earn profit job by job, not month by month. A single blown budget can erase the margin from three good projects. You need to know your numbers while the job is still running, not after handover.
Job costing assigns every cost to a specific project. That includes materials, labour, plant hire, subcontractors and site overheads. When you compare actual costs with your original estimate, you spot overruns early and act before they grow.
Set up a separate job code for each project in your accounting software. Then split costs into clear categories, such as labour, materials and subcontractors. Consistent coding makes your reports accurate and your quotes smarter on the next tender.
Progress Claims and Retentions Explained
Most construction contracts pay in stages. You submit a progress claim for the work you have completed, and the client pays that amount. This approach keeps cash moving through long projects.
Retentions work differently. The client holds back a percentage of each payment (often around 5%) as security for defects. They release it at practical completion or after the defects liability period. Until then, that money is yours on paper only.
Treat retentions as a receivable and track them per job. Many builders forget about them, so they never chase release dates. Review your retention balances every month and diarise each release date.
Security of payment laws also set strict time limits for claims and responses. Late or incorrect claims can cost you the right to payment. Use a consistent claim template and keep your supporting evidence for every stage. Specialist construction bookkeeping keeps this process organised from the first claim to the final release.
WIP Tracking: Know What You Have Earned
Work in progress (WIP) shows how much of each job you have completed, billed and costed. A WIP schedule compares three things: the contract value, the cost to date and the amount invoiced. The gap tells you whether you are overbilled or underbilled.
Underbilling means you have done work you have not yet claimed. That drains your cash. Overbilling means clients have paid ahead of your progress, which looks healthy but hides future costs. Update your WIP schedule monthly so your profit figures stay honest.
Subcontractor Reporting and Compliance
Subcontractors make up a large share of construction costs. Record each payment with the invoice, ABN and date. Confirm that every contractor holds the right licence and insurance.
Businesses in the building and construction industry must also lodge a Taxable Payments Annual Report (TPAR) with the ATO, usually by 28 August. Accurate monthly records make this report quick. Without them, you scramble each August and risk penalties.
How Management Accounting Shows Project Profitability
Bookkeeping records what happened. Management accounting explains what it means. Together, they show which job types, clients and teams earn the best returns.
Regular reports help you answer key questions:
- Which projects hit their budgeted margin?
- Which cost categories run over most often?
- How much cash do you need in the next 90 days?
Professional accounting services turn your job data into these insights. You then price work with confidence and decide when to take on more projects.
Construction Cash Flow Tips and Forecasting
Cash flow causes more construction failures than poor workmanship. You pay wages and suppliers weekly, while clients pay in stages and often late. A rolling 12-week cash flow forecast bridges that gap.
Follow these habits to protect your cash:
- Submit progress claims on time, every time.
- Chase overdue invoices within days, not weeks.
- Negotiate supplier terms that match your payment cycle.
- Set aside GST, PAYG and super as you earn.
- Forecast cash weekly and update it with real figures.
Reliable bookkeeping Australia builders trust gives you current data to build that forecast. You then see shortfalls weeks ahead and arrange funding before the pressure hits.
Construction Finance Checklist
| Task | How Often | What It Protects |
|---|---|---|
| Code costs to jobs | Weekly | Accurate job profit |
| Lodge progress claims | Per contract stage | Steady cash flow |
| Review retention balances | Monthly | Held-back money |
| Update WIP schedule | Monthly | True profit reporting |
| Check subcontractor records | Monthly | TPAR accuracy |
| Update cash flow forecast | Weekly | Early shortfall warnings |
See Every Project’s Profit Clearly
We set up job costing in Xero, track your retentions and WIP, and keep your TPAR and cash flow forecast up to date. Builders across Sydney work with us from our North Strathfield and Liverpool offices.
Frequently Asked Questions
What is job costing in construction?
Job costing tracks every cost against a specific project. You compare actual spending with your budget, so you see profit and overruns while the job is still running.
What is a retention in a building contract?
A retention is a percentage the client holds back from each payment as security for defects. They release it after practical completion or at the end of the defects liability period.
How often should builders update a WIP schedule?
Update it monthly at a minimum. Regular updates show underbilling and overbilling early, so you can fix cash flow gaps before they hurt your business.
What is the difference between underbilling and overbilling?
Underbilling means you have completed work you have not yet claimed, which drains your cash. Overbilling means clients have paid ahead of your progress, which can hide costs still to come.
Do builders need to lodge a TPAR?
Yes. Businesses in the building and construction industry that pay contractors must lodge a Taxable Payments Annual Report with the ATO, usually by 28 August each year.