What is Billable Expense Income in QuickBooks?

When you pay for something on behalf of your client and then charge them back for it, you are dealing with billable expense income.

For many service businesses, this is a daily reality – but tracking these expenses properly can be confusing.

If you are using QuickBooks software for the first time and scratching your head about billable expense income, you are not alone.

What is Billable Expense Income in QuickBooks: A Brief Overview

Billable expense income refers to money your business receives from clients as reimbursement for costs you have paid on their behalf. 

Think of it as a pass-through transaction – you front the money, then bill your client to get it back, often with a markup.

What Exactly Counts as Billable Expense Income?

In QuickBooks, billable expense income happens when you:

1. Pay for something specifically for a client
2. Record that expense in QuickBooks and mark it as “billable”
3. Add it to the client’s invoice
4. Get paid by the client

For example: let’s say you are a marketing consultant. You buy stock photos for a client’s website. That stock photo purchase isn’t your normal business expense – it is something you bought specifically for this client. When you bill the client for those photos (maybe even with a small markup), the money you receive is billable expense income.

Billable vs. Non-Billable Expenses: Key Difference

Not every expense can or should be billed to clients. Here’s how to tell them apart:

Billable expenses are costs directly tied to specific client projects that you expect to be reimbursed for. These are marked as “billable” in QuickBooks.

Non-billable expenses are your regular business costs that you absorb and don’t charge to any specific client. Think office rent, your internet bill, or general software subscriptions.

The key difference? Billable expenses are client-specific and reimbursable, while non-billable expenses are part of your general overhead.

Why Tracking Billable Expense Income Matters?

You might wonder why QuickBooks treats billable expense income differently from your regular service income.

There are good reasons:

Financial Clarity and Accuracy

Separating billable expenses from your regular income gives you a clearer picture of your actual service revenue versus pass-through costs. This helps you analyze your true profit margins without the noise of reimbursed expenses.

Tax Benefits You Shouldn’t Miss

Here’s something many business owners miss: billable expenses are generally 100% tax-deductible. By properly tracking these expenses in QuickBooks, you create a clear paper trail for tax time.

For example, if you travel for a client project and don’t identify those travel costs as billable expenses for that specific client, the IRS might question those deductions. But with proper tracking in QuickBooks, you’ve got documentation that links the expense directly to your client work.

Client Billing Transparency

When clients can see exactly what they’re being charged for, they’re more likely to pay promptly.

Detailed invoices with itemized billable expenses build trust and reduce payment disputes.

Common Examples of Billable Expense Income

Billable expenses pop up in many industries. Here are some common examples you might encounter:

Travel Expenses

If you visit client sites, travel expenses are often billable. This includes:

• Flights and hotels
• Meals during client meetings
• Car rentals or mileage
• Parking fees

A web developer flying to meet a client might charge for their plane ticket, hotel stay, and even meals during the trip.

Materials and Supplies

Materials used specifically for client projects are classic billable expenses:

• Construction materials for a specific building project
• Printing costs for client brochures
• Software licenses purchased for a client’s project
• Raw materials for manufacturing client orders

Client Communication Tools

Setting up special systems for client work can be billable:

• Project management software subscriptions
• Client portals or dashboards
• Conference call services
• Specialized communication tools

Service Provider Fees

Subcontractors or specialized services hired for specific client projects:

• Freelancer fees for client work
• Expert consultations
• Technical specialists

Payment Processing Fees

Those small percentages add up! If you pay processing fees when receiving client payments, these can be treated as billable expenses:

• Credit card processing fees
• PayPal or other payment platform charges
• Bank wire transfer fees

How to Set Up Billable Expenses in QuickBooks?

Ready to start tracking billable expenses in QuickBooks? Here’s how to get started:

Step 1: Enable the Billable Expenses Feature

First, you need to turn on the billable expenses feature:

1. Click the gear icon to open Settings
2. Select “Account and Settings”
3. Choose the “Expenses” tab
4. Find “Bills and expenses” and click the pencil icon to edit
5. Check the box for “Make expenses and items billable”
6. Save your changes

Step 2: Create Relevant Expense Categories

Organizing your expenses with proper categories makes tracking much easier:

1. Go to your Chart of Accounts
2. Create categories that make sense for your business (Materials, Travel, Subcontractor Fees, etc.)
3. Use these categories consistently when recording expenses

Good categories might include “Client Travel,” “Project Materials,” or “Subcontractor Fees” – whatever makes sense for your specific business.

If you are a first time user of this world class accounting software, check out this guide about how difficult is quickBooks to learn and set up.

The Billable Expense Workflow in QuickBooks

Once you’ve set up billable expenses, here’s how the workflow goes:

Recording Expenses as Billable

When you pay for something on behalf of a client:

1. Click the “+ New” button
2. Select “Expense” under the Vendors section
3. Enter expense details (vendor, date, amount)
4. Select the appropriate expense category
5. Choose the customer you’re billing in the “Customer” column
6. Check the “Billable” checkbox
7. Save the expense

How to Add Billable Expenses to Invoices in Quickbooks?

When it’s time to bill your client:

1. Create a new invoice for the client
2. QuickBooks will automatically show unbilled expenses for that client
3. Select the expenses you want to include
4. Add any service charges or other line items
5. Finalize and send the invoice

The great thing about QuickBooks is that it remembers which expenses are billable and prompts you to include them when creating invoices. This helps ensure you don’t forget to bill clients for expenses you’ve incurred.

How to Track Unbilled Billable Expenses in Quickbooks?

To make sure you don’t miss billing any expenses:

1. Run the “Unbilled Charges” report regularly
2. Review expenses that haven’t been added to invoices yet
3. Create invoices for any outstanding billable expenses

This report is your safety net for catching expenses you might have forgotten to bill to clients.

Reporting on Billable Expense Income

QuickBooks offers several reports to help you track and analyze billable expenses:

Key Reports to Monitor

1. Unbilled Charges Report: Shows expenses marked as billable that haven’t been invoiced yet
2. Project Profitability Report: Analyzes income and expenses by project, including billable expenses
3. Customer Profitability Report: Shows how profitable each customer is, including billable expense reimbursements
4. Profit & Loss Report: Shows your billable expense income separately from other income types

These reports help you ensure you’re capturing all billable expenses and analyze which clients or projects are most profitable.

Best Practices for Managing Billable Expenses

Here are some tips to make the most of the billable expense feature in QuickBooks:

• Establish Clear Client Policies: Define which expenses are billable upfront in your client contracts. This prevents disputes when clients receive invoices with unexpected charges.
• Capture Expenses Promptly: Get in the habit of recording expenses as soon as they happen, while details are fresh. Take photos of receipts on the spot using the QuickBooks mobile app.
• Use Consistent Markups: If you apply markups to billable expenses, be consistent. Some businesses add a standard 10-15% to cover handling and administrative costs.
• Communicate Clearly with Clients: Let clients know about significant expenses before you incur them. Nobody likes surprise charges on their invoice.

How to Troubleshoot Common Billable Expense Issues?

Even with the best systems, problems can arise. Here are solutions to common issues:

Missing Billable Expenses on Invoices

If billable expenses aren’t showing up when creating invoices:

• Check that the expense was properly marked as billable
• Verify the correct customer was assigned to the expense
• Confirm the expense hasn’t already been billed on a previous invoice

Reconciliation Problems

If your books aren’t balancing:

• Make sure billable expenses were recorded as expenses first, then converted to income when billed
• Check that expenses weren’t accidentally duplicated
• Verify that the expense and income accounts are properly linked in your chart of accounts

FAQs about Quickbooks Billable Expense Income

Conclusion

Properly tracking billable expense income in QuickBooks gives you clearer financial insights, helps you recover all client-related costs, and provides better tax documentation.

While it takes a bit of setup, the payoff in financial accuracy and client transparency is well worth it.

Take time to set up your billable expense categories, train your team on proper expense coding, and run regular reports to catch any unbilled expenses.

Remember, the goal is not just to get reimbursed – it is to have a clear picture of your true service income separate from pass-through expenses.

In short, recording billable expenses in Quickbooks properly helps you make better business decisions based on your actual profitability.