Guide to billable expense income: definition, examples, and uses

Income and expenses are easy enough to understand in business. However, things can become less clear when you’re working with clients or making purchases on behalf of customers. Those kinds of costs are known as billable expense income because when you make an expense on behalf of someone else, you expect to be able to bill that back to them as part of your contract.

In this article, we expand on the concept of billable expense income, provide examples, and outline some best practices for tracking to ensure transparency with your customers and profitability in your business.

What is billable expense income?

Billable expense income, also referred to as billable expenditure revenue, is revenue generated by purchases made on behalf of a third-party client or customer. These kinds of expenses could relate to travel to a client site, shipping costs for delivering samples to a customer, or software you buy on someone else’s behalf to complete a project.

A typical example that illustrates the concept well is a catering business. When putting on an event for your company, a caterer pays for the trays and burners. Then, they itemize those expenses on your invoice—part of the invoice is billable expense income.

Billable vs. non-billable expense income

But how do you know what’s billable versus non-billable expense income? Billable expenses are any costs directly related to the client project and are thus charged back to them. Non-billable expenses are internal costs that your company absorbs and can’t be charged back.

So, for example, if you’ve hired a marketing consultant to create a digital campaign for your business, the billable expenses would be things like research and design costs. In contrast, the non-billable expenses would be any office supplies or overhead associated with running the broader consulting firm that would apply to every client they serve.

Examples of billable expense income

Other billable expenses include research and planning, online payment processing fees, tools for client engagement, office supplies, subscriptions, and travel expenses.

Let’s dive deeper into each category to explain why and how certain costs are considered billable expenses:

Research and planning expenses

Offering your company’s services to a client is only the first step. Once the contract is signed, research and planning may be required to fulfill your business obligations, which can include time and labor. A best practice in this case is to itemize research and planning as a billable expense on your invoices.

One example is the research and meetings a freelance copywriter needs to do before they can start writing for a client. Many freelancers neglect itemization and choose not to classify research as a billable expense instead of bulking it into a per-page or per-hour rate. However, this increases their tax liability.

Digital payment processing fees

Digital payment platforms charge a fee to process payments—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 departments know this because invoices and accounts receivable won't match without including the fee.

The same situation applies if you incur fees when purchasing materials or supplies to service a client properly. For instance, if you’re buying additional hardware or software from an online vendor, that may be a payment processor, like PayPal, that charges 2–3% for transactions. That portion of the payment should be listed as billable expense income on any income statement.

Tools for client engagement

When onboarding a new client, you may need to implement a client engagement system that could include instant messaging, reporting dashboards, and automated emails. The fee for those tools is a billable expense. The time spent setting them up and using them also falls within this category

Sometimes, client engagement doesn’t necessarily require new technology. So, it's also good practice to note the time spent on a phone call as a billable expense.

Client materials

Your company may have multiple clients that require the same materials. In this instance, 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 big mistake since costs incurred on behalf of a client should always be listed separately.

Imagine your company provides custom printing services. You have various clients for whom you purchase printing materials and incur shipping costs to deliver the final products. Instead of lumping all the shipping costs together under a general expense category in your general ledger, you should itemize these costs per client. That way, if you agree to bill these expenses back to your clients, you can accurately invoice them for the exact amount of shipping costs incurred on their behalf.

Shipping costs

If your business is responsible for covering the cost of shipping as part of delivering a product or service, then the shipping cost is considered an expense. This cost is recorded on your income statement as an expense, which will reduce your net income.

If you pass the shipping cost onto the customer, it's considered a billable expense. You’d invoice the customer for the shipping cost, and when the customer pays the invoice, that amount is recorded as income on your income statement.

Subscriptions and fees for service providers

Invoices from service providers needed to complete a job can be passed on to the client. Examples include advertising costs, licensing fees for intellectual property, and shipping costs. These should be itemized on receipts and included on the client invoice, then classified as billable expenses.

For best results, keep expenses for each client independent from one another. Any fees incurred on behalf of your entire company that happen to benefit you in that client relationship, like an industry newsletter, for instance, should be kept separate.

Travel expenses

Traveling to a client’s office is a billable expense. Add the cost of the trip to your invoice and include airfare, hotel, and rental car, but not drinks at the bar. You’ll also want to avoid invoicing for a client dinner. If you pay that tab, treat that as a relationship-building non-billable expense for your business, not something to include on the client’s invoice.

It’s a best practice to use a corporate card for travel expenses to eliminate any confusion over whether it’s business or personal. Using a personal credit card and reimbursing yourself from the company may be a red flag if you’re audited. The IRS can deny travel charges or any expense they deem personal and not a business expense.

How to account for billable expenses in QuickBooks

In QuickBooks, accounting for billable expenses is a straightforward process. Here's a step-by-step breakdown of how it works:

1. You incur some expense on behalf of a client or customer, like purchasing materials for a project or paying for shipping costs to deliver goods to them
2. You record the expense in QuickBooks in an expense account and mark it as billable to the appropriate client
3. When you create an invoice for the client, QuickBooks prompts you to add the billable expense to the invoice
4. Once the client pays the invoice, the amount is recorded as billable expense income

To further automate the process and guarantee accuracy in your bookkeeping, consider connecting QuickBooks to a spend management platform to track all of your business expenses.

Connect your accounting software with Ramp

Through our Quickbooks integration, Ramp can help you digitize your expense policy, auto-categorize expenses, and automate reimbursements. You can also split transactions and allocate business expenses by job, client, location, or project code.

Ramp also connects with a whole suite of popular accounting software, including Sage, NetSuite, and Xero. Learn more about how you can save hours every month with our automated expense management software.