Most A&E firms book revenue when the invoice goes out. Under GAAP, that can be wrong for many design contracts. Billing is when you ask for money; revenue is when you've earned it, and for architecture and engineering work those two dates often do not match. A firm that treats milestone invoices as its revenue calendar will misstate income, sometimes in both directions across the same portfolio. Getting revenue recognition right determines what your income statement says, what your WIP schedule shows, and what an auditor accepts at year-end.
Why design fees are earned before you invoice
ASC 606 recognizes revenue over time when a contract meets any one of three criteria. For a fee to qualify, the contract must satisfy at least one of these:
- The client simultaneously receives and consumes the benefit as you perform
- Your work creates or improves an asset the client controls as it's built
- Your work has no alternative use to you, and you hold an enforceable right to payment for work completed to date
Many fixed-fee A&E design contracts qualify under the third test, but each contract must be evaluated based on its terms, governing law, and enforceability. A set of construction documents for a specific client's site can't be redirected to another customer, and the right to payment must cover costs to date plus a reasonable margin, not just a termination penalty. That right generally must survive a client's termination for convenience, which is why your contract template matters as much as your accounting policy. AIA B101–2017 helps here: its suspension compensation clause in Section 9.2 entitles the architect to payment for services performed before any suspension longer than 90 consecutive days.
Once over-time treatment is established, GAAP doesn't just permit booking the fee as work progresses. It requires it, invoice or no invoice.
Milestone invoices don't measure earned revenue
The right-to-invoice practical expedient, which lets a firm recognize revenue equal to the amount billed, applies only when each invoice corresponds directly to the value delivered. That describes time-and-materials work.
It does not describe a fixed-fee contract where 30% of the fee is invoiced at kickoff but only 10% of the work is done. Fixed-fee billing milestones are typically set for cash flow management, not to track completion, so booking revenue at invoicing on those contracts is the most common recognition error in professional services.
Fixed-fee contracts need a progress-based measure instead. Which measure fits, how to select it, and how the math plays out on a real project are covered in our guide to the percentage-of-completion method. The number that method produces, whatever it is, becomes the earned revenue for the period, even when the milestone invoice you sent that month is smaller or larger.
The earned-versus-billed gap lives on your balance sheet
The spread between earned and billed doesn't vanish. It sits on the balance sheet as a contract asset, the ASC 606 term for what most firms call unbilled WIP. When billings run ahead of earned revenue, the excess is a contract liability: you owe the client work. Retainers and upfront deposits follow the same logic and stay in deferred revenue until performance catches up.
Contract assets carry more risk than receivables because collection depends on future performance, not just the passage of time. And they lose value as they age. Practitioners use aging thresholds to keep the balance honest:
- 30 days: review the balance and determine billing eligibility
- 60 days: escalate to a principal and decide whether a client conversation is needed
- 90 days: treat as high write-off risk, because recovery options are narrowing
Past those thresholds, the economics turn ugly: work sitting unbilled for 90 days or more collects at roughly 50 cents on the dollar. The leakage compounds after invoicing too. Monograph's 2026 Architecture & Engineering Business Benchmarks Report found baseline firms average 96% realization, losing 4 cents on every dollar of billable time to write-offs and scope creep, and the report puts average time to payment at 34 days, with low performers waiting 42. Revenue that never converts to cash creates a credit-loss or write-off problem, even when the original recognition was valid.
Better project controls can materially reduce that gap. After adopting Monograph, Workbench reported 75% fewer unbilled fees and a 4x faster billing process.
Paused projects don't unwind booked revenue
When a client puts a project on hold, the revenue you already recognized stands, provided the work was performed and an enforceable right to payment existed at the time. The B101 suspension clause is your accounting backstop here: it documents that right for everything completed before the pause.
What a pause can trigger is a contract modification. For the single integrated performance obligation typical of full-service design contracts, a modified scope or fee produces a cumulative catch-up adjustment: you update the transaction price and percentage complete, then book the effect in the current period.
Two obligations follow every pause. Contract assets on stalled projects must be assessed for expected credit losses, since collection now depends on a project that may never resume. And any variable consideration in the transaction price, such as an unpriced change order you estimated into revenue, must be re-estimated each reporting period. An estimate that goes unreviewed across repeated reporting periods is an accounting error waiting to be found.
The documentation that protects your position
Auditors don't take over-time recognition on faith; they expect a file. Firms defending their revenue recognition positions should maintain five things:
- Signed contracts and change orders, including termination-for-convenience payment language
- A documented over-time criteria assessment for each contract type
- Current cost budgets supporting total estimated costs at completion
- Written rationale for every variable consideration estimate
- A WIP schedule reconciled to the general ledger each period
Skipping the monthly reconciliation is how surprises happen. One contractor showed 400,000 in profit through November, then watched 150,000 vanish when the year-end WIP adjustment corrected twelve months of overbilling nobody had tracked.
None of this works if percent complete is a guess. Recognition by phase requires phase-level budgets, time logged against those budgets, and invoicing tied to progress, which is exactly the granularity QuickBooks Online alone doesn't provide. Monograph's project accounting tracks phase budgets, unbilled amounts, consultant fees, and project-level profitability, with QuickBooks Online integration that syncs invoices from Monograph to QuickBooks and cost data from QuickBooks into Monograph, so finance and project teams can work from connected project financial data. Start by pulling your current WIP aging: anything past 60 days is where your next write-off, or your next recovered fee, is hiding.
Turn Your WIP Into Defensible Revenue
Clean revenue recognition starts with a repeatable monthly process. Review aged WIP, confirm your contracts preserve the right to payment, update project estimates, and reconcile earned and billed revenue to the general ledger before the gap becomes a year-end adjustment.
Monograph gives project and finance leaders one connected view of phase budgets, logged time, invoices, unbilled amounts, consultant fees, and project profitability. That makes it easier to measure progress consistently and catch stalled fees while there is still time to bill or resolve them.
Year-end is too late to find the gap. Give your team the project-level financial data to defend recognized revenue and act on unbilled fees before they become write-offs. Book a demo.
Frequently Asked Questions
Can we recognize revenue based on invoices for time-and-materials work?
Yes. Confirm that the billing terms reflect the work performed before applying that approach. Do not extend it to fixed-fee milestone invoices set primarily for cash flow.
What should we do if a fixed-fee project lacks reliable hour budgets?
Use another progress measure supported by the way the work is performed, such as cost-to-cost or phase deliverables. Document why the measure reflects performance, then update the underlying estimate at each close. If percent complete is still a guess, fix the phase budgets and time-tracking process before relying on the resulting revenue number.
Do we reverse revenue when a project is paused?
No, not automatically. Review the contract's suspension and termination language, assess the contract asset for expected credit losses, and update the transaction price and percentage complete if the pause changes the scope or fee.
Is unbilled WIP the same as accounts receivable?
No. Unbilled WIP is a contract asset because collection still depends on future performance or another condition beyond the passage of time. Accounts receivable represents an unconditional right to payment. Reconcile both balances to the general ledger each period, and escalate unbilled WIP once it passes the firm's aging thresholds.
Data was collected as of April 2026.