Billable Expense Income Definition
Billable expense income refers to the revenue that businesses generate by charging clients for all those expenses that the business incurred on the client’s behalf.
The key to a small business’s financial success is to prioritize its most essential expenses. Taxes, rent, utilities, shipping costs, and payroll are some examples.
No business can operate without sending, receiving, and tracking incoming and outgoing payments. Vendors who incur costs while providing a good or service to another firm or consumer may bill these costs directly to the client if the contract or agreement allows.
Billable expense income differs from product income because it does not include the cost of production. Understanding the terminology associated with each financial element that supports a successful organization comes with the territory of monitoring revenues and expenses. A new business owner might not be familiar with or frequently use the concept of “billable expense income.”
Now the question arises: What is billable expense income, how is it tracked, and can your firm generate billable expense income from it?
Let’s address each of these queries individually in the sections below:👇
📌 Key Takeaways
- Billable expense income is the money a business receives from a client to cover all the expenses incurred during the client’s projects.
- Keeping billable expenses separate from service income keeps the financial report clean and accurate.
- Travel expenses, such as flights, hotels, meals, or materials (including raw materials and printing materials) used during the project, or the cost of subcontractors, are considered billable.
- Local transportation, such as cab rides or travel between business locations, is a billable expense.
- The record of billable expenses is always shown as an asset on the balance sheet.
- Managing billable expense income is helpful in enhancing & determining accurate financial records and tax liability.
💡Fact File:
👉 According to IRS guidelines, there is a 50% deduction for unreimbursed business meals that are not entertainment-related.
What Is Billable Expense Income?
Billable expense income is any revenue derived from purchases made on behalf of a client or customer. In simple words, a company charges all the expenses to the customer associated with client-related work.
Almost every business has billable expenses. These involve paying for materials and transportation, as well as purchasing a digital property. If, as a small business owner or self-employed individual, you do not list billable charges on your invoices, you are probably losing out on a sizable amount of money related to billable expenses.
It is especially crucial when paying taxes. If it is not recorded or if it is incorrectly categorized as general expense revenue, the business may have to pay more in taxes.
You don’t want to take any chances when it comes to tracking your business spending. A computerized accounting system is the best tool for managing business spending. You can use Moon Invoice to create invoices and add billable charges after enabling chargeable expenses.
Ease Your Billable Expense Income Management 💸
Make your expense management simple, accurate, and fast with Moon Invoice.
Billable vs. Non-Billable Expenses
After understanding what is billable expense income, let’s move on to another point that confuses professionals. Often, people have no clear view of how to distinguish between billable and non-billable expenses. Billable and non-billable expenses differ in their purposes and other factors, which are described below:
| Billable Expenses | Non-Billable Expenses |
|---|---|
| Billable expenses are the charges you incur to carry out activities, offer services, and provide supplies on your client’s behalf. Small business owners can charge their clients to recover these expenses. | The costs you incur to manage your own business, carry out your activities, and fulfill your obligations are referred to as non-billable expenses. Businesses cannot charge these costs to the client. |
| Billing your employer for business-related travel expenses to attend a business convention is an illustration of a chargeable expense. | The pay-per-view movies you rented while staying at the hotel wouldn’t cost you anything. These costs that you incurred but were not necessary for your job |
| Examples include business supplies, database connection costs, and travel costs. | Expenditures associated with your collaboration with specialists that the client refuses to cover are referred to as non-billable costs. Most independent contractors’ company expenses will consist largely of non-billable costs. |
| Billable costs are qualifying expenses that your client agrees to be billed for. | All the associated costs with your work with professionals that the client won’t reimburse you for are known as non-billable expenditures. |
🚀 Wow-worthy Insight:
Employees working from the office incur $51 more than those working from home.
Billable Expense Income Examples
After defining the meaning of billable expense income, let’s understand billable expense income through examples. These examples are the major sources of billable expense income for the businesses:
Travel
The customer should be reimbursed for any travel costs incurred while working on a project or on-site. As a result, save any receipts for travel expenses you pay for a customer, such as flights, lodging, and related charges. You can speed up the refund procedure by charging the expense as a billing item on your expense account and attaching the required documentation. Even when you use your vehicle, you can add billable expenses for the fuel costs.
Client Communication
If you have lengthy discussions with clients or prospective customers about strategies and plans for moving forward with their projects, be upfront about the administrative fee you will charge for the consultation based on billable hours.
When a new client is onboarded, businesses often set up a client engagement system, which may include automated emails, reporting dashboards, conference calls, and instant messaging. The billable hours required to set them up with a long-distance client and use them are also included in this category of billable expense. This way, you can be paid for the time you spend working without losing money.
Materials
Any client materials you get for a specific client might be charged to their account. For example, take a look at past instances of how a small catering company would pay for event supplies or a freelance web designer would pay for software licensing. A freelancer may have to pay for domain registration if an existing website is not available. Also include the shipping costs incurred on the client’s invoice.
Your customer is responsible for reimbursing you for these expenses because they purchased the goods. Be sure to track billable expenses and note them on your invoice.
Advertising Opportunities
As a freelance copywriter or advertiser in the freelancing world, you need to account for a lot of expenses in your billable expenses while invoicing your clients. You need to include the costs incurred for purchases, from office supplies to creative licensing of intellectual property. You can also account for the time you spend conducting research and performing market research on your client’s goals.
Online Payment Processing Fees
Like other businesses, small business owners may take payments from customers through a digital platform. If a charge for processing payments is incurred, be sure to list it as a billable item on the invoice. This may also include advertising costs or processing fees for your clients. This group is easy to understand. Future clients may get service provider invoices that are required to finish a job. On the client invoice, these should be accurately acknowledged and listed as billable expenses.
For optimal outcomes, try to keep client bills apart from one another. A newsletter subscription for your sector is an example of pretty hefty processing fees that your entire organization must pay, but that should be kept separate.
Costs of Preparation and Research
The process doesn’t start unless the client accepts your business’s services. You may need to conduct some study and planning after the contract is signed to uphold your half of the bargain. Both of those have a cost that takes labor and time into consideration. The best course of action in this situation is to include market research and preparation as a billable expense on your invoice.
Subscription
Any client-related work that requires subscription services is counted as a billable expense, along with the associated subscription cost. Therefore, companies can include the same in the invoice. However, the cost should be purely invested in the client’s work and contribute value.
Client Engagement Tools
Companies often need to establish a client communication system to enhance engagement. This system includes automated emails, real-time messaging, and a reporting dashboard. All the costs spent on using and setting up these systems will be considered billable expenses.
💡Pro Tip:
According to Entrepreneur.com, separating business and personal finances makes tax preparation easier.
Bonus Tips: What Is Expense Analysis?
Why Is Billable Expense Income Valuable for Tax Deductions?
Billable expense income is useful during tax filing because it is generally subject to a 100% tax deduction. Therefore, professionals should treat it carefully and keep it separate from the business’s general expenses and income.
Consider the cost of travel, for example. If you often travel but don’t identify your travel expenses as business expenses for a specific customer, the IRS may not allow you to write them off. Consider it providing a paper trail. Include the charges for accommodation, rental cars, and airfare as itemized expenses on the client’s invoice.
Other expenses, such as vehicle use, advertising, and promotional charges, are also tax-deductible. Inadequate tracking of corporate expenses may result in indirect tax consequences.
How Moon Invoice Can Help You Track Billable Expenses?
Moon Invoice, a reputable accounting software, helps businesses create invoices and add billable charges. Professionals can easily automate and get corresponding reports.
The platform eases billable expense management by offering the following billable expense tracking features:
Automating Expense Logging
Once the user connects their bank accounts and credit cards, the software automatically tracks and categorizes expenses, leading to accuracy and time savings.
Digital Receipt Management
The platform offers the best digital recordings of the receipts. The well-organized recording enhances the client’s work. They can easily and quickly access the details without any difficulty.
Time Tracking
Through the time tracking feature, professionals can track the accurate time spent on client projects (billable hours), which helps provide accurate labor cost billing. The feature allows professionals to track every second.
Integration
The software easily integrates with various payment gateways to ease the online payment process. The integration works with all popular payment gateways, making international payments simple and fast.
Quick Receipt Scanning
The Moon Invoice app enables professionals to quickly scan receipts and generate expense reports in just 10 seconds. It offers a highly convenient approach for users because it is both fast and accurate.
Set Recurring Expenses
Automate all recurring expenses, such as utility bills, subscription bills, or rent, so you never miss a payment and ease the tracking actions.
Track Your Billable Expenses Hassle-Free
With Moon Invoice, you can streamline your expense tracking and get the billable expense income your business deserves.
Wrapping Up
Accounting best practices are the backbone of any successful project, and one of them is segregating billable expenses from your main income stream. The proper classification of chargeable and billable expenses may affect an organization’s ability to claim small business tax deductions on its annual tax filing.
Using a cloud accounting system is the best way to keep track of business expenses. If you use Moon Invoice, you can enable chargeable expenses in just a few simple steps. With this integration, you can distribute transactions and divide business-related expenses by work, client, region, or client’s project code.
Frequently Asked Questions
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
