Small business owners wear many hats, accountants being one of the most important and most overwhelming among them. Staying on top of revenues and expenses is essential, and part of that territory involves understanding the lingo attached to each financial factor that contributes to a healthy business. “Billable expense income” is one of those terms that the average business owner may not know or work with every day. What is billable expense income, how can you track it, and can it become a source of revenue for your business?
What is billable expense income?
Billable expense income is any revenue generated in relation to purchases a business makes on behalf of a client or customer. For example, if you hire a caterer for a party, they might purchase trays and burners to bring with them. Those items could be considered billable expenses and would show up on your final bill as such. The portion of your invoice that covers the trays and burners could be classified as billable expense income, separate from the amount owed for the caterer's services.
Billable expenses are present in practically any business. These can include shipping costs, supplies purchases, or even digital property acquisition. However, if you are not including billable expenses on your invoices, you are likely missing out on a significant amount of billable expense income.
6 sources of billable expense income
1. Research and planning
If you need to engage in significant research and planning before conducting services for a client, the time you spend doing so could be considered a billable expense. As a service provider, your time and labor are your most valuable assets, so it is important to charge for them accordingly.
For example, if you are a freelance copywriter hired to write blogs, you’ll have to plan for what you’re writing about. This could require meetings with stakeholders at your company, researching the competition, and conducting other digital marketing research to write the best blogs possible. While this time is directly related to your services – website copywriting – it is distinct and can be considered a billable expense.
For transparency in billing and accounting purposes, you should include research and planning fees as line items on your invoices. These should also be counted as billable expenses in your accounting software.
2. Online payment processing fees
If you incur any payment processing fees when receiving payment from a client, you could include that as a billable expense and build the fees into your pricing. The convenience of using digital payment platforms for service providers and clients alike means they are more ubiquitous than ever. However, accepting most or all payments via a digital platform means a lot of revenue can get eaten up by payment fees. Explain to your clients upfront that payment fees will be included in the final bill, and then account for them as billable expense income.
Similarly, if you incur any payment processing fees due to needed purchases of materials and supplies to complete a job for your client, you could include those fees as billable income on your next invoice. Fees incurred for outgoing payments can eat into profit just as quickly as fees for incoming payments, so be sure to track them as well.
3. Communication with clients
A free consultation can be a great tool for service providers to engage potential clients. However, taken too far, and the free consultation becomes a wholesale giveaway of your expert skills. If you're spending time discussing a client's goals and strategies in detail, you need to bill them for it. Place a time-based cap on any free consultations, so it becomes clear when the conversation is moving into the billable territory.
This billable expense goes beyond consultations. If you have a client who calls frequently and unnecessarily, for example, billing them for the time is a good way to make those calls worth your while. While communication with clients should always be tallied as a billable expense, be sure you clearly communicate your policy with them upfront to avoid an unpleasant surprise when they receive your next invoice.
4. Materials
Any materials purchased to complete a job for a client are considered billable expenses. Anything directly related to the work you are performing for them qualifies.
For example, landscapers routinely purchase supplies like mulch, flowers, and topsoil. They might also use pavers to create raised beds and gardens. All these materials could be considered billable expenses and added to the client's tab. However, the rakes, shovels, and buckets that a landscaper carries with them from job to job are not considered billable expenses, since they are not directly tied to the individual job.
5. Services
If you need to work with service providers to complete a job for a client, their invoices can be passed onto your client as a billable expense. These include advertising costs, fees for licensing rights to intellectual property, and shipping costs.
6. Travel costs
Any business-related travel that must be performed as a condition of completing a job for a client could be considered a billable expense. Much like when a company sends someone on a business trip, saving receipts and running expense reports throughout the duration of your trip is essential to billing your client for the expenses you incur in a fair and transparent way.
For example, flights, car rentals, and hotel rooms could all be considered billable expenses during the course of your trip. However, one should avoid billing for non-essential things like room service or drinks at the hotel bar. It is best practice to work out an agreement with your client regarding billable travel expenses prior to departing for your trip. That way, everyone is on the same page about the impact your traveling will have on final costs.
Don't leave billable expense income on the table
Billable expense income is one of the biggest missed opportunities faced by small business owners and self-employed individuals. Keep track of the expenses you incur during a project and, if they are directly related to the completion of the job, account for them as billable expenses. Further, accounting for billable expense income helps you better understand your business, plan ahead for healthy cash flow, and demonstrate to clients the effort that goes into completing a job from start to finish. Good business starts with good accounting, and distinguishing billable expense income from your main revenue stream is just another component of accounting best practices.
