As the owner of a small business, it is not unusual to incur certain expenses on the behalf of your clients when working on multiple projects. These are reimbursable expenses and you need to bill them and hand over to clients. However, make sure that it doesn’t shock your client. Otherwise, you’ll not only struggle for getting the money but also lose a potential client. This is the reason why you need to learn to handle reimbursable expenses delicately.
What do we understand by the term ‘Reimbursable Expenses’?
Billable expenses or reimbursable expenses are costs you incur on the behalf of your clients while delivering a job. Whether you book a hotel for your client or go to a conference in his place, it is justified to keep receipts and charge clients for that. In most cases, employees know what’s reimbursable as companies give clear guidelines. But, for freelances, pointing out which part is reimbursable might be a tricky business.
Common Instances of Reimbursable Expenses:
For simplicity, here are some basic examples of billable expenses. Remember that these expenses may not always be to reimbursable. So, apply common sense and assess the situation when you ask these questions to yourself:
- Is the expense mandatory to complete the work?
- It charging the client reasonable?
- Am I performing the last on my client’s behalf?
If you get an affirmative answer to the above-mentioned questions, then it is reimbursable. You can also speak to your accountant to be doubly sure.
How can you track Reimbursable Expenses?
Rely on accounting software for capturing billable expenses. One such software will save your time and energy, and also minimize chances of errors.
Best practices to collect reimbursable expenses:
Follow these guidelines before giving the receipt to your client:
- Discuss in advance- Nobody wants to bid adieu to a profitable client. But, if the client assumes you are taking unnecessary advantage of him, he’ll start looking for alternate options. To avoid angry or awkward conversations, set ground rules regarding billable expenses before starting a novel project. Discussing things openly with client will leave no ground for future misunderstandings.
- Keep evidence- Even if your client has agreed on an expense as reimbursable, still keep supporting evidence. Always attach the expense report along with images of receipts.
- Bill clients on time- It is always a good practice to provide bills for all types of costs at the earliest. The sooner you offer the bill, the sooner you get the money. Moreover, it is natural to forget the details at the end of the year.
- Know the tax implications- If you supply adequate documents, the client is accountable for paying 50 percent of the tax in case of reimbursement. So, check with a tax adviser and prepare tax reports accordingly.
The bottom line is to always produce and keep receipts to maintain an accurate record. This task becomes extremely easy and simplified with the help of software like FreshBooks. You’ll be able to track and store everything automatically.