Billable expense income: Definition, examples, and how to track

A client asks you to order supplies for a project, and you put the cost on your company card. When the client reimburses you, that money isn’t new profit—it’s repayment. These kinds of costs are called billable expense income. When you cover an expense on a client’s behalf, you record the payment and reimbursement to keep your books accurate.

Understanding how billable expense income works helps you bill clients correctly and keep financial reports clean. It also prevents overstating revenue on your financial statements.

What is billable expense income?

Billable expense income is the income your business earns when it pays an expense on a client’s behalf and is later reimbursed. It’s a pass-through transaction that offsets the original cost rather than profit.

Common examples include travel to a client site, shipping samples to a customer, or buying software needed to complete a project.

For example, when a catering business pays for trays and burners to host a company event, those costs appear on the client’s invoice as billable expense income. In other words, your company covers the cost upfront, then bills the client to recover it—without inflating revenue.

How billable expense income works

Here’s the general flow of the billing process:

1. Your business pays the expense upfront. This could be travel, materials, shipping, or other client-related costs
2. You itemize the expense on the client’s invoice. This makes the reimbursement request clear and transparent.
3. The client reimburses you. At this point, the cost is covered and recorded as billable expense income.

Billable expenses become billable at the moment you decide they’re tied directly to a client project. Depending on your industry, your business may also add a markup to cover handling, time, or overhead, though this depends on the contract terms.

Billable vs. non-billable expense income

Billable expenses are any costs directly tied to a client project and charged back to them. Non-billable expenses are internal costs your company absorbs and can’t be charged back.

For example, if you hire a marketing consultant to create a digital campaign for your business, the billable expenses might include research, ad spend, and design costs. In contrast, the non-billable expenses would include the consultant’s office supplies, rent, or other overhead that apply to every client.

Billable expenses protect your profitability by ensuring clients cover project-specific costs, while non-billable expenses come out of your own pocket and directly affect your margins and cash flow.

Common examples of billable expense income

Once you know which costs are billable, it helps to see what they look like in practice. Common examples include research and planning, online payment processing fees, tools for client engagement, office supplies, subscriptions, and travel expenses.

The following examples show why these costs qualify as billable expenses and how to document them properly.

Research and planning expenses

Research and planning often qualify as billable expenses because they directly support client projects. Once a contract is signed, your team may need to spend time preparing or gathering information before any deliverables are produced. Itemize these costs on your invoices so clients understand what they’re paying for.

For example, a freelance copywriter might spend several hours researching and meeting with a client before writing begins. Many freelancers skip this step and bundle that time into a per-page or hourly rate, but doing so can increase their tax liability.

Subcontractor fees

Subcontractor fees are billable when you hire outside professionals to complete part of a client project. This applies across industries: an ad agency may hire a freelance videographer, a law firm may rely on an expert witness, and a consulting firm might bring in a specialist analyst.

The key is transparency. Let clients know when subcontractor fees are part of the project cost, and itemize those charges clearly on your invoices.

Digital payment processing fees

Digital payment platforms charge fees to process transactions, and those fees qualify as billable expenses. Many small business owners make the mistake of only counting the portion they receive after the processing fee is deducted. Accounting teams know this because invoices and accounts receivable won’t match without including the fee.

The same logic applies when you incur fees while purchasing materials or software for a client. For example, if you buy hardware through an online vendor that uses a payment processor like PayPal, you might pay a 2%–3% transaction fee. That portion should be listed as billable expense income on your income statement.

Tools for client engagement

When onboarding a new client, you may need to implement engagement tools such as instant messaging, reporting dashboards, or automated emails. The fees for those tools are billable expenses. These costs are often overlooked but can add up quickly. The time spent setting them up and using them also falls within this category.

Client engagement doesn’t always require new technology. Time spent on phone calls or meetings can also count as billable expenses if it’s directly related to servicing the client. Tracking this time helps ensure your invoices reflect the full scope of your work.

Client materials

When materials are shared across projects, it’s easy to lose track of which costs belong to which client. Your company may have multiple clients that require the same materials. The natural tendency is to list them in bulk, creating a business expense category on one line in your general ledger. However, doing this can be a mistake—costs incurred on behalf of a client should always be listed separately.

For example, a custom printing business should itemize shipping costs by client rather than grouping them under a single expense category. That way, each client is billed accurately for their portion of the cost.

Shipping costs

When you cover shipping as part of delivering a product or service, the cost is treated as an expense on your income statement, reducing net income.

If you bill that shipping cost to the customer, it becomes a billable expense. Once the invoice is paid, record the reimbursement as income to offset the original expense. Keeping these entries categorized correctly prevents inflated revenue or misstated profit.

Subscriptions and fees for service providers

Subscriptions and service provider fees that directly support a client project can be billed back to that client. Examples include advertising costs, licensing fees for intellectual property, or third-party shipping services. These should be itemized on receipts, included on the client invoice, and classified as billable expenses.

Keep each client’s expenses separate to avoid confusion. Company-wide subscriptions that only indirectly benefit a client—like an industry newsletter or general software license—should remain non-billable.

Travel expenses

Traveling to a client’s office is a common billable expense. You can invoice airfare, hotels, and rental cars, but not personal costs like bar tabs or client dinners. Those should be treated as non-billable, relationship-building expenses for your business.

It’s best to use a corporate card for travel expenses to avoid confusion between business and personal charges. Relying on a personal card and reimbursing yourself can raise audit concerns, and the IRS may deny any costs it views as personal rather than business-related.

How to track billable expense income

Tracking billable expenses accurately is essential for clear financial reporting and fair client billing. When expenses aren’t recorded correctly, you risk overstating revenue, missing reimbursements, or losing documentation during an audit.

Many businesses start with spreadsheets or paper receipts, but those methods often lead to lost records and invoicing delays. As your business grows, automation makes the process faster and more reliable.

Accounting tools such as QuickBooks let you mark expenses as billable and add them directly to invoices, while spend management platforms like Ramp go further with AI-driven categorization, real-time syncing, and complete audit trails.

To set up your tracking process effectively, it helps to start by organizing your accounting system for billable expenses.

Setting up your accounting system

Keep billable expenses organized by setting up your accounting system to clearly separate client costs from everyday business expenses:

• Create separate accounts for billable expenses: Track client-related costs in distinct accounts to prevent confusion with internal operating expenses. This setup simplifies invoicing and ensures accurate financial statements.
• Categorize properly: Assign each expense to the right client and project. For example, shipping costs tied to Client A should not be lumped in with those for Client B.
• Use software setup best practices: Whether you’re using QuickBooks, Xero, or a spend management software, configure your chart of accounts to flag billable expenses. Many platforms offer customizable fields to tag expenses by client, project, or reimbursement status.

Best practices for documentation

Strong documentation is the backbone of accurate billable expense tracking. At a minimum, your business should retain receipts, contracts, or supplier invoices that prove an expense was tied to a client project. This documentation supports reimbursement requests and protects you during audits.

Keep receipts organized with digital tools instead of paper files. Mobile apps and cloud-based systems make it easy to upload, categorize, and retrieve documentation in real time.

Clear communication with clients also matters. Agree in advance on which costs are billable and confirm approval for any gray-area expenses. Proactive communication prevents billing disputes and builds trust.

Billable expense income on financial statements

Billable expenses are first recorded as costs when incurred, then as income when reimbursed by the client. For example, if you spend $1,000 on materials and bill the client for the same amount, both entries show up on your statement but offset each other.

That’s why clear tracking is key. Without it, your gross revenue may look inflated even though your profit hasn’t changed. Accurate recording helps you maintain transparent, audit-ready books.

Example journal entry

Impact on your income statement

Billable expenses are first recorded as costs when incurred, then as income when reimbursed by the client. For example, if you spend $1,000 on materials and bill the client for the same amount, both income and expense appear on your statement but cancel each other out.

Without clear tracking, your gross revenue may look inflated, so focusing on net revenue gives a more accurate picture of profitability.

Tax considerations

Tax treatment of billable expenses depends on how you record and reimburse them. Billable expenses are generally deductible if they’re ordinary and necessary business costs, but reimbursements offset the deduction. If you pay subcontractors and bill clients for their work, you may need to issue Form 1099-NEC for tax compliance.

Because tax rules can vary by business structure, it’s worth confirming your reporting method with a qualified tax professional.

Common mistakes to avoid

Common accounting mistakes can make billable expense tracking unreliable and reduce billing accuracy. Here are some pitfalls to avoid:

• Mixing billable and non-billable expenses: Combining client costs with internal expenses makes reporting inaccurate and billing harder to justify
• Delaying invoices: Waiting too long to bill clients for reimbursable expenses can hurt cash flow and lead to missed payments
• Misunderstanding markups: Failing to separate reimbursements from profit, or incorrectly applying markups, can distort margins
• Poor documentation: Missing receipts or unclear notes make it difficult to support charges during audits or client reviews

Even small oversights can affect profitability, audit readiness, and client trust.

How Ramp simplifies billable expense tracking

Tracking billable expenses for client invoices can quickly become a nightmare when you're juggling receipts, categorizing costs, and matching expenses to specific projects.

Many businesses lose thousands in unbilled expenses simply because they can't efficiently capture and organize client-related spending, while others waste hours each month manually compiling expense reports for invoicing.

Simplify how you capture billable expenses

Ramp transforms this chaotic process through automated expense management that captures every billable dollar. When your team makes purchases, Ramp's receipt matching technology automatically pairs transactions with uploaded receipts, eliminating the hunt for missing documentation at invoice time.

Organize spending by client or project

You can create custom expense categories specifically for different clients or projects, making it simple to track which expenses belong to which invoice. As employees submit expenses, they can tag them with client codes or project identifiers, creating a clear audit trail that connects every purchase to its corresponding billable activity.

Track billable activity as it happens

The real game-changer is Ramp's real-time visibility into spending patterns. Instead of waiting until month-end to discover what's billable, you can monitor client-related expenses as they happen through customizable dashboards and automated expense reports.

Set up rules to automatically categorize common billable expenses like travel, software subscriptions, or contractor fees to specific client accounts.

Invoice confidently with built-in documentation

When it's time to invoice, export detailed expense reports with all supporting documentation directly from Ramp, complete with receipt images and transaction details your clients need for their own records.

This systematic approach not only ensures you capture every billable expense but also provides the transparent documentation that builds client trust and speeds up payment cycles.

Better accounting for billable expenses

Ramp offers direct integrations with popular accounting systems and ERPs, including QuickBooks, NetSuite, Xero, and Sage Intacct. With a seamless flow of data between systems, you can be confident your books stay clean and that billable expense income is categorized accurately.

Try an interactive demo and see why 40,000+ businesses, from family farms to space startups, choose Ramp for their finance operations.