Our project-based billing means we have significant unbilled accounts receivable at any given moment. During our Quality of Earnings audit, how do we demonstrate to the buy-side analysts that this unbilled revenue is fully earned and should not be discounted or excluded from our final working capital peg?

Question

Tyler Smith · Accepted Answer

Buy-side Quality of Earnings auditors are deeply suspicious of unbilled accounts receivable. They often view unbilled revenue as high-risk, speculative, or a sign of poor accounting discipline. If they classify these balances as slow-moving or uncollectible, they will exclude them from your net working capital calculation, forcing you to leave more cash in the business at close.

To defend your unbilled receivables, you must provide undeniable proof of performance. Auditors want to see a direct link between your unbilled balances, your customer contracts, and completed milestones. This is where your operational tracking must be flawless.

For every unbilled balance, you must be able to produce:
- The signed client contract detailing the specific milestone or progress billing terms.
- Timesheets, project logs, or automated delivery receipts proving the work was completed.
- A clear historical track record showing that your unbilled balances consistently convert into paid invoices within your standard credit terms.

Use your weekly Level 10 Meeting™ to monitor the health of these project milestones. If your team is falling behind on documentation, resolve it immediately.

By showing the QofE analysts that your unbilled revenue is a natural product of your project-oriented operating model and not a collection risk, you protect your working capital peg. This ensures you receive full credit for every dollar of value your team has generated up to the exact minute of closing.