True-up
A true-up is an adjustment made after the fact. During a period, you pay an estimate. When the period ends, the real cost is worked out, and the difference is settled with an extra payment or a credit.
Leases, utilities and service contracts all use the idea.
This entry is part of the Fairview Audit glossary. It explains the term so you can read the adjustment lines on your own bills.
Why a true-up matters in a cost review
A true-up is where estimates meet reality. If the estimate was too low, you owe more. If it was too high, you are owed money back. Either way, the figure is built from the other side's records, and you rarely see those records unless you ask.
That makes true-ups a natural place for errors. A cost review checks that the actual costs are real, that they belong to you, and that the math follows the contract. Partner firms in our network look at these adjustments as part of a lease audit and compliance review and in supplier contract work.
A plain-words illustration
Think of a tenant in a shared building. Each month the landlord bills an estimated share of the building's running costs. Nobody knows the real total until the year closes.
After year end, the landlord compares what it billed with what it actually spent. If the tenant paid less than its share, a bill follows. If the tenant paid more, a credit or refund is due. The same pattern appears when a software vendor bills for a set number of users and later adjusts for the number actually used, or when a supplier bills at an estimated volume and settles against real volume.
How it shows up in a review
A partner firm usually asks for the contract, any amendments and the payment history. The contract says how the estimate is set, when the adjustment happens and what support the other party must provide. Many contracts also set a deadline for the statement and a period in which you can question it. [VERIFY: check each contract for its own deadlines, because they vary]
The firm then looks at items such as:
- whether the estimate was built the way the contract says
- whether the actual costs include items the contract excludes
- whether your share was calculated on the right basis
- whether a credit owed to you was applied or left out
- whether the same cost appears in both an estimate and an adjustment
The most common home for a true-up is the yearly settlement of shared building costs, covered in the entry on CAM reconciliation. Other lease terms can interact with it, such as an escalation clause that raises a base amount over time.
Common mistakes
- Paying the adjustment without support. A statement with a single total is not enough to confirm it. Ask for the detail the contract entitles you to.
- Missing the window to question it. Contracts may limit how long you have to raise an issue. Note the dates when the statement arrives.
- Ignoring credits. A true-up can go in your favor. Credits that are never claimed are a common finding.
- Treating each year alone. An error in the estimate method can repeat every year. Check prior periods too.
- Not keeping the estimate records. You cannot test an adjustment without knowing what you paid during the period.
- Assuming all true-ups work alike. The method comes from the contract in front of you, not from a general rule.
Note: Accounting treatment of estimates and adjustments follows the reporting standards your business uses. [VERIFY: ask your accountant how true-up amounts are recorded under your reporting framework]
What to have ready
If you want a partner firm to look at true-ups, it helps to gather the contract and amendments, each year's estimate notice, each adjustment statement and the payment history. Keep any correspondence about disputed items too. A lease abstract or a summary of key contract dates can speed up the first conversation.
Related terms and pages
Fairview Audit connects you with finance professionals and partner firms. The partner firm performs any review, and the engagement and any fees are between you and the firm.
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