There is a group of financial terms commonly used by surety bond underwriters when evaluating contractors for bid or performance bonds. Individual Sureties use these concepts in their decision making, and corporate sureties follow suit.
o Working Capital: A measure of short term financial strength (Current Assets - Current Liabilities.)
o Net Quick Assets: A more conservative measure of short term financial strength (Cash, Investments and Receivables - Current Liabilities).
o Underbillings and Overbillings: When analyzing the current body of open contracts, the degree of completion is compared to the percentage billed to see if billing is at an appropriate stage. It is normal to find that the contractor is billed either ahead or behind. They are entitled to a larger "billed to date" amount, or they may have aggressively billed beyond the correct amount. Underbillings are a Balance Sheet current asset and Overbillings are a current liability. So if "Billings in Excess of Costs and Estimated Earnings" are Overbillings, what is Job Borrow?
Overbillings are dollars intended for the contractor that have been collected early. They are profit dollars in hand, that are not yet earned. Job Borrow is something more.
o Job Borrow: is defined as "Overbillings - Current Estimated Total Gross Profit." The difference between the two concepts, Job Borrow and Overbillings, is an important one that should be recognized by bond underwriters and contractors. Overbillings are profits in hand that are not yet earned. The money will eventually be deserved by the contractor. Job Borrow dollars will never belong to the contractor.
The great risk with Job Borrow is when it is not recognized by management or when it is an excessive amount. It can jeopardize the profitable completion of the project and increase financial pressure on the surety if a default and surety claim arise.