If you are running your own business, you must be deeply familiar with invoices and bills. After all, no business can survive without sending, receiving, and recording both their incoming and outgoing expenses. Experts advise small businesses to prioritize their most essential payments, such as taxes, rents, utilities, and payroll, as that's key to thriving on the financial front. On the other hand, business owners themselves are pretty vigilant about their incoming bills and diligently keep track of the clients owed to them. Still, there is one category of expense that passes under the radar of many business owners: billable expense income. The reason is that this kind of income is prone to get lost amongst other things like the processing fees and the total amount on a single bill. So, unless you are fully aware of what billable expense income is, you are likely to ignore it and consequently, lose out financially. We’ll start by giving you a quick rundown about billable expenses, so you know you are looking at it when you see it. Next, we will briefly discuss the primary sources of billable income. Lastly, we will help you understand how you can track it to save your costs.What Does Income from Billable Expenses Mean?
Managing Billable Expenses for Client Services
As a business owner who provides services, you often make purchases for your customers. For instance, if you run a catering business, you must buy trays and other items to ensure good service. While you cannot refuse to provide these items when catering for an event (because your reputation is on the line!), neither can you pay for them out of your pocket. In such cases, since you have got to keep the ball rolling, what you do is that you spend money on these items yourself and wait to get paid for it later.
Another example is if you are a web designer, you would need to make certain buying decisions for your customers. For instance, you might have to pay for new domain registration - which is an easier way to go about getting a new domain instead of directing your customer to pay for it directly. When you make the purchase on your own, you later get reimbursed for it by the client. In this case, the money you spent on the domain is a billable expense.
Note that such expenses that you incur on behalf of a client are not automatically included in your service. So, when you send an invoice to your customers, it is important to identify all such expenses you undertook on behalf of your client and then bill them accordingly. In other words, instead of including it in the overall expenses, you should count it as a billable expense on your invoice and mention it clearly as such.
Sources of Billable Expense Income
Billable expenses are decidedly different from your product or service charge or even administrative fee, as explained by Laurie Brenner here. However, it does include the time you spend working for a customer – commonly known as billable hours – and yes, that includes hours where you do not produce concrete material results.
Confusing? Well, don’t worry – because right up next is a succinct list of the most common kinds of expenses you can categorize as billable expenses. It will help you track billable expenses so you can proceed to the step of billing your client accordingly.
1. Research and Planning
Try as you like; no project comes perfectly together in the first attempt. Before sending deliverables to your customers, you have to undertake detailed planning and research so that the beginning phase is smooth and even. Later, as work proceeds, research, further planning, and revisions are still something you conduct. As part of your processing fees, don't forget to note down and mention these as billable expenses.
2. Travel
Any travel that you undertake for a project is and should be recovered at a later stage from the customer. Therefore, make sure to keep receipts of air tickets, accommodation expenses, and the like – basically, all travel expenses that you incur on behalf of a client. When you charge it as a billing expense on your expense account, you can attach the required receipts to streamline the repayment process.
3. Communication
If you conduct in-depth conversations with customers or potential customers where you discuss strategies and plans to proceed with their project, make sure you are upfront about what you will charge for the consultation. Count the hours you spend speaking about a project with clients as billable hours, mark them as such on your invoice, and get paid accordingly.
4. Materials
Any materials that you purchase on behalf of a customer are a billable expense. For this, consider the examples we described above – of a catering business purchasing necessary items for an event or a web developer paying for domain registration. Since these are materials you buy for your customer, they are responsible to reimburse you for them. Just make sure you mark it as a billable expense on your invoice.
5. Payment Processing Fee
Like most businesses, you may be using a digital platform to receive payments from your customers. However, if you are charged with a payment processing fee, make sure to add that into the invoice as a billable expense.
Why and How to Track Your Billable Expense Income
Now that you are aware of what a billable expense income is, make sure you don't miss identifying and categorizing such expenses correctly. A big reason why you should do it becomes clear when you consider tax filing.
When you file your taxes as a small business owner and report your billable expense as a general expense, you make your business liable to pay a higher tax. On the other hand, billable expenses, which are business expenses, are 100% tax deductible.
The smartest way to track and document all your billable expenses securely is by using an online accounting tool. We recommend ZarMoney for this purpose. A versatile accounting tool with excellent features for managing accounts receivable, invoices, and payment processing, ZarMoney comes in handy for small business owners who are looking to track all their billable expenses through automation so there are fewer errors and delays in the process. Try it out for free and experience the ease of using this smart app for yourself.
