In construction, time is money—but so is information. Waiting for invoices to arrive before tracking costs can leave even the most seasoned project managers blindsided. Projects can overrun budgets not because of unexpected events, but because costs weren’t accounted for soon enough. That’s where the concept of accrued expenses becomes a critical piece of the puzzle.
For construction companies, large or small, managing finances in real time is a constant challenge. Delays in billing cycles and the sheer complexity of tracking vendors, subcontractors, materials, and labor can make it difficult to know the true financial state of a project. That’s why smart teams rely on projections and accruals—because the bill may not be due yet, but the cost is already real.
Why Invoices Don’t Tell the Whole Story
Invoices are transactional—they’re documentation of costs that have already occurred and are now officially due. But in many construction projects, work happens long before an invoice shows up. Subcontractors might complete a phase of a job this month, but their bill might not land on your desk until the next. Materials may be delivered and installed, but the vendor could bill you 30 or 60 days later.
If you’re only recording costs as invoices arrive, you’re getting a delayed picture of your project’s financial status. That lag can lead to budget surprises, cash flow issues, and misinformed decision-making.
To stay ahead, businesses need to be proactive about recognizing costs the moment they’re incurred—not just when the bill arrives.
Understanding Accrued Expenses
This is where accrued expenses come into play. In accounting terms, these are costs that have been incurred but haven’t yet been paid or formally invoiced. Think of them as financial placeholders—an acknowledgment that your company owes money for goods or services already received, even if the paperwork hasn’t caught up.
In construction, accrued expenses can cover things like:
- Labor hours already worked but not yet billed
- Subcontractor services completed but not invoiced
- Materials delivered to a site that haven’t been paid for
- Equipment rentals for the current billing cycle
- Travel or permitting fees incurred mid-project
By recording these costs early, your budget reflects the true financial state of the project—giving you a real-time view instead of a rearview mirror snapshot.
Staying on Budget with Proactive Cost Management
Construction budgets are often tight, and margins aren’t always forgiving. That’s why understanding and using accruals is more than an accounting practice—it’s a project management strategy. When you track incurred costs accurately, you can make smarter, faster decisions about resourcing, cash flow, and future phases.
Let’s say you’re halfway through a commercial build. The HVAC subcontractor completed their install two weeks ago, but their invoice is still in transit. Meanwhile, your project dashboard shows you’re under budget. Without recording the accrual, you might commit funds elsewhere or assume you have more room to spend than you actually do.
With the accrual in place, your reporting reflects the pending liability, and you’re better equipped to manage spending with confidence.
Accruals Help Avoid the “End-of-Project Crunch”
Many construction teams face a common scenario: everything seems on track—until the final weeks, when a flood of invoices arrives. Suddenly, a project that looked profitable is over budget. The “surprise” isn’t the cost itself—it’s the timing of when those costs showed up on the books.
This last-minute accounting panic can be avoided by regularly accruing expenses throughout the life of the project. With ongoing review and adjustment, you’ll have a clearer sense of project health and fewer financial surprises at the end.
According to Deloitte’s 2023 Global Construction Survey, over 54% of construction executives say project cost overruns are a top risk impacting their business. That’s not just about rising prices—it’s about cost visibility and control.
How to Integrate Accruals Into Your Workflow
You don’t need a CPA on-site to track accruals. What you do need is a process that integrates with your existing workflow. Most construction project management tools now have features that allow for estimated costs, progress tracking, and accrual entries.
Here’s how to start:
- Set up a cost tracking system that records when services are delivered—not just when invoices arrive
- Coordinate with project managers and site supervisors to log work completed weekly
- Collaborate with your finance team to build a process for reviewing and updating accruals regularly
- Use historical data to estimate costs for recurring services or standard materials
- Reconcile accruals against actual invoices to fine-tune accuracy over time
This approach doesn’t have to be complicated—it just has to be consistent.
Transparency Builds Trust
Accurate cost tracking doesn’t just help your internal team—it strengthens your reputation. When you can provide real-time financial updates to clients, offer accurate projections, and avoid budget shocks, you’re building trust with stakeholders and reinforcing your professionalism.
Accrual-based reporting can also be a key asset when bidding on new projects. Clients want to know you have the systems in place to stay on top of both timelines and costs. Demonstrating that level of control and foresight could be what tips the scale in your favor.
Final Thoughts
Managing project costs before the invoices arrive isn’t about being paranoid—it’s about being prepared. In an industry where delays and variables are a given, proactive financial tracking gives you the stability you need to deliver projects on time and on budget.
Accrued expenses may sound like a detail best left to accountants, but for construction professionals, they’re a powerful tool for real-time decision-making. When used effectively, they don’t just protect your balance sheet—they help build a more resilient, responsive business.
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