As a freelancer or small business owner, you know there’s no shortage of invoices, expenses, receipts, and payments to track. Failure to stay organized and maintain thorough records could cost you big bucks in the end. But do you keep track of your billable expense income?
If not, you could already be losing money without even knowing it.
Chances are, though, the reason you don’t track your billable expense income is that you don’t know what this term means. If you don’t know what this income actually is, how can you track it and ensure you’re being compensated?
Don’t worry — we’re here to help:
What is Billable Expense Income?
Few businesses exist without incurring expenses. Much of the time, these expenses are the cost of normal business operation. Examples of this include paying for internet access, office supplies, or software licensing. Typically, these purchases are just called business expenses.
Sometimes, though, a business makes a purchase on behalf of a client. When such a purchase is made, it’s called a billable expense.
Billable expense income is the money paid by a client to cover expenses incurred on their behalf. Sound confusing? Think of it this way:
Imagine you work as a freelance web designer. Your current client is far from web-savvy and has no existing website or domain name. To move forward with the project, your options are to:
- Pay for the domain registration out of your pocket and lose the money
- Direct your client on how to register their own domain name and give you access
- Pay for the domain registration out of your pocket and request reimbursement from the client
As you can see, the concept of billable expense income is pretty common in the freelancing world. After all, asking your client to order the supplies or services you need to complete their project is a recipe for disaster. And paying for these things out of your own pocket will quickly eat away at your earnings.
In the end, it’s much easier to just make the purchase yourself and charge the client later.
Writing billable expense income into your contract
Before we go any further, it’s important to note that billable expense income isn’t guaranteed. Reimbursement for purchases incurred on your client’s behalf must be included in your contract from the start.
The way billable expenses are handled within a contract largely depends on the document’s existing terms. If you’re unsure how to address billable expenses and reimbursement in your contract, speaking with a lawyer is the best way to cover your bases.
The Five Sources of Billable Expense Income You’re Probably Missing
Our example above — starring the hypothetical web designer registering a client’s new domain — is just one scenario featuring billable expense income in action. But you’d be surprised how many of these qualifying expenses are overlooked by freelancers and small business owners each year.
Here are five of the most common sources of billable expense income you might not know about:
1. Client communication
As freelancers, we all have our craft. For some, it might mean mixing music for an upcoming commercial. For others, it could be dissecting the code of a new app. But if someone asks what you do for work, you’d probably give your craft — whatever it is — as the answer.
But what if this means you’re selling yourself short? In fact, there’s a pretty good chance that you are.
You might spend most of your days sitting in front of a graphic design program or carving away in your woodworking studio, but that’s only part of a freelancer’s day-to-day work. If you want to make money, you also need to spend time communicating with prospective and existing clients.
If you charge your clients a flat rate, your billable hours (including client communication) should already be accounted for in your contract.
If you charge by the hour, though, you need to track every minute you spend working on a client’s project. This includes answering emails, talking face-to-face, or sitting in on a conference call. Failing to track this time and include it on your client’s invoice could mean giving away hours of your life — for free.
2. Planning and research
Once in a great while, the stars are perfectly aligned and a client’s project comes together with incredible ease. Sadly, this isn’t the norm. Instead, a successful project can take hours of market research, rough drafts, and client revisions.
If you work in a creative field, it’s easy to discount your initial concepts as not actual work. The same is true for performing market research before diving into a client’s project. Take away these things, though, and the final product of your work completely falls apart.
Just like time spent communicating with clients, the time you spend conducting research and building concepts for your client is extremely valuable. Including this work in your billable hours will ensure you get paid what you deserve.
The internet has transformed the world of freelancing, including how many of us get paid. But as pretty much any freelancer or small business owner knows, accepting online payments can mean paying some pretty hefty processing fees.
Listing these fees as a billable expense can be an effective way to save money, essentially passing on the cost of online payment to your clients.
4. Travel costs
Clients can come from anywhere in the world, especially when it’s become so easy to communicate across oceans, time zones, and even different languages. In some cases, though, taking on a long-distance client requires traveling for meetings or on-site work.
Most people know that an employer will reimburse its workers for business-related travel. If you’re self-employed, you obviously don’t have an employer to cover these costs. But you do have a client.
Your billable expense income isn’t limited to plane tickets and hotel rooms, though. One of the most common examples of a billable expense is mileage from driving your personal vehicle to and from a client. Even if your clients are in the same city as you, this mileage can quickly add up.
Counting travel costs as a billable expense is pretty standard, but you should still make sure both you and your client are on the same page. Again, travel plans and reimbursement agreements should all be laid out in a contract before moving forward.
5. Materials and services
Finally, the most common type of billable expense: materials and services. But while these expenses are the most common, they’re often some of the easiest to overlook.
The materials and services that you purchase on behalf of clients will vary greatly depending on your field. If you need a little help imagining what materials and services you should be listing as billable expenses, check out these examples:
- Advertising costs — An independent marketing consultant purchasing advertising opportunities for a client.
- Creative licensing — A freelance graphic designer purchasing the rights to a font, illustration, or photo for a client.
- Supplies — A small catering company purchasing specific cutlery for a client.
- Shipping costs — A furniture maker shipping a commissioned project to a client.
As a general rule, any supply or service you purchase for a specific client and have no intention of using for future clients is an eligible billable expense.
In the same vein, anything you purchase for a client that they then retain ownership of when your work is done is a billable expense.
What Is NOT a Billable Expense?
By now, you should have a pretty clear idea of what a billable expense is and why you should charge for them. But don’t get carried away thinking that anything and everything you purchase should be passed on to your client’s invoice.
Anything that’s necessary for your business’ day-to-day operation is not a billable expense. For instance, you can’t pass on the cost of printer ink to a client just because you ran out while working on their project.
Even if you do purchase a product or service specifically for one client, you shouldn’t count it as a billable expense if you can use it again for clients in the future. For this reason, it’s important to think carefully about what you do or do not list as a billable expense.
However, you should still record each of these expenses. Although you can’t pass on the full cost to your clients, you can deduct these purchases from your income taxes each year.
The Hassle-Free Way to Track Your Billable Expense Income
At this point, you might be feeling a bit exasperated. After sorting countless receipts and saving months of invoices, now you need to add another chore to your bookkeeping duties? Fortunately, tracking your billable expense income doesn’t need to be that hard.
Most bookkeeping software offers a way to track your regular business expenses. While this feature is crucial for managing your taxes each quarter, it doesn’t help much when it comes to your billable expenses.
You can also go the old-fashioned route by stockpiling invoices and receipts in your desk or a cardboard box. When it comes time to bill your client, though, you might decide you’d rather eat the costs than dig through stacks of paper.
With invoicely, though, you can track your regular business expenses and billable expenses all in one place. invoicely keeps track of your billable hours, mileage, and other expenses for as long as you need. Once it’s time to get reimbursed, all it takes is the simple push of a button to send an invoice to your client.
Learn more about how invoicely can streamline your expense tracking and help you get the billable expense income you deserve.