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.
Without sending, receiving, and keeping track of incoming and outgoing payments, no business can operate. 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 as they do not include the cost of production. Understanding the terminology associated with each financial element that supports a successful organization comes with the territory of keeping an eye on 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.
What is Billable Expense Income?
Billable expense income is any revenue derived from purchases made on behalf of a client or customer.
Almost every business has billable expenses. These might involve paying for materials and transportation, as well as purchasing a digital property. If as a small business owner or self-employed 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 involves keeping track of spending in your business. 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.
Why Billable Expense Income is Important for Tax Deductions?
To properly file taxes for small businesses, taking into account billable expense income is essential. It could result in a higher tax bill if billable income is not recorded or mistakenly classified as general expense revenue. The typical tax deduction for company expenses is 100%. Conversely, reductions in taxes for general expenses might be limited.
As an example, consider the cost of travel. 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 as providing a paper trail. Include the charges for the accommodation, the rental cars, and the airfare as itemized expenses on the client 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.
6 Essential Sources of Billable Expense Income
Here are the top 5 sources of billable expense income that a firm makes to save money:
1. Travel
The customer should be reimbursed for any travel expenses spent as part of a project or on-site work. As a result, save any receipts for travel expenses you pay for a customer, such as those for flights, lodging, and related charges. You can speed up the refund procedure by charging it as a billing item on your expense account and attaching the required documentation. Even when you use your personal vehicle, you can add billable expenses of the fuel costs.
2. Client Communication
Be upfront about the administrative fee you will charge for the consultation on billable hours if you have lengthy discussions with clients or prospective customers about strategies and plans for moving forward with their projects.
When a new client is onboarded, businesses frequently set up a client engagement system, which may include automatic emails, reporting dashboards, conference call, and instant chat. 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.
3. Materials
Any 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. Or a freelancer may have to pay for a domain registration if an existing website is not present. Also include the shipping costs and expenses incurred on the client’s invoice.
Your customer is responsible for paying you back for such expenses because they are the ones who purchased these goods. Just be sure to track billable expenses and note that it is a billable item on your invoice.
4. Advertising Opportunities
As a freelance copywriter or advertiser in the freelancing world, you need to account for a lot of expenses in your billable expense while invoicing your clients. You need to include the fees incurred for purchases incurred 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.
5. Online Payment Processing Fees
Like other businesses, small business owners might be taking 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.
6. Costs of Preparation and Research
The process doesn’t start unless the client accepts your business’ 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.
Billable vs Non-Billable Expenses
| Billable | Non-Billable |
|---|---|
| Billable expenses are the charges you incur to carry out activities, offer services, and production supplies for your client’s behalf. Small business owners can charge your client 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. |
| 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 have billed. | Costs associated with your work with professionals that the client won’t reimburse you for are known as non-billable expenditures. |
Conclusion
Accounting best practices are the backbone of any successful project, and one of them is segregating billable expense money from your main income stream. The proper classification of chargeable a billable expense 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 for keeping business expenses in check. If you utilize Moon Invoice, you may enable chargeable expenditures in just a few simple steps. With this integration, you may distribute transactions and divide business-related expenses based on a work, client, region, or client’s project code.
Track Your Billable Expenses Hasslefree!
With Moon Invoice you can streamline your expense tracking and get the billable expense income your business deserves.
FAQs
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.
