Work in Progress (WIP)

Work in progress (WIP) represents all the labor and costs your agency has invested in client projects that haven't been invoiced yet. If your team spent 200 hours this month on a website project that won't be billed until the next milestone, that 200 hours × your bill rate is sitting in WIP. It's real work, real cost — but no cash has come in yet.

WIP is an asset on your balance sheet, which sounds nice until you realize it's also cash you've spent (on salaries, freelancers, tools) without being reimbursed. High WIP means your agency is financing client work out of its own pocket, sometimes for weeks or months before getting paid.

Every agency has some WIP — it's a natural part of project-based work. The problem is when WIP grows unchecked. This happens when invoicing is delayed, milestones are too far apart, projects stall but costs keep accruing, or when project managers don't track hours carefully enough to know when a billing milestone has been reached. Healthy agencies monitor WIP weekly and have clear processes to convert WIP into invoices as quickly as possible.

WIP is the silent cash flow killer for agencies. You can be "profitable" on paper — with plenty of revenue recognized — but cash-poor because all that revenue is trapped in WIP. Meanwhile, payroll is due every two weeks, rent is due on the 1st, and your freelancers expect to be paid within 30 days.

Excessive WIP also signals operational problems. If WIP is growing month over month, it means you're doing more work than you're billing. Maybe projects are behind schedule, maybe your invoicing process is slow, or maybe you're doing work that will never get billed (which means your WIP is actually a hidden loss). Track WIP to cash conversion as a key agency metric.