Best Practices for Collecting Reimbursable Expenses From Clients

Generating monthly (or weekly) invoices is only half of the invoicing story in many cases. What about reimbursable expenses?

You’ve likely established a routine for generating monthly (or weekly) invoices, sending them out, and collecting your hard-earned payment from customers. But this is only half the invoicing story in many cases. What about reimbursable expenses?

Consider this case study: independent consultant Robert Heredia has been working on a project for a client who has store locations in three different states. When Robert travels to work on location, he drives or flies there, stays at a hotel, and eats out. What expenses should his client pay for? Should Robert fly first class or take the Greyhound? Should he submit a separate invoice for these expenses or just add them to the same one he usually sends? Robert has to treat expenses as an equally important component of the invoicing process otherwise he’ll be losing money, and fast.

Keep in mind that while most reimbursable expenses are usually related to travel, other costs such as printing costs (perhaps the client wants 200 additional full-color proofs the day-of) or materials costs (you run out of lumber building the photoshoot) can also add up quickly. Here are three key rules to help make invoicing for reimbursable expenses as easy and routine as your regular monthly invoices:

1) What to invoice? – Agree in advance

In order to avoid awkward or even angry conversations, set the rules in advance regarding what kinds of expenses will be covered. You can have your own expensing clause in your contract, or simply ask your client if they have a policy regarding expenses. When in doubt, ask. And always apply common sense by viewing the expense from your client’s perspective (would they consider it a reasonable expense?). You don’t want to lose a client because they think you are taking advantage of them.

2) Expense reports – The devil is in the details

Even once you have agreed on what can or cannot be expensed, you should itemize and give supporting evidence of your expenses whenever possible. Even if you just add one line item for “expenses” to your invoice, always attach an expense report with images of the original receipts and details for each charge. Your client probably needs these details for their own accounting and tax purposes, and the transparency will reinforce goodwill on both sides.

3) Make friends with taxes

When you deduct expenses under meals and entertainment, only 50% of the reimbursed expenses are deductible as per IRS rules. Someone has to take a 50% non-deductible expense for certain items, but it doesn’t necessarily have to be you.   If you are reimbursed by your client for the actual cost of the expense and provide the client with adequate documentation, then the client has to account for the 50% on their taxes.  If you want to add a margin to the expenses, then you will have to claim the expenses yourself or register them as cost of goods sold.

Note: This information can apply generally to most situations but you should always check with a professional tax adviser who is familiar with your particular situation when preparing your taxes.

Rolf Garcia-Gallont is an expert expense reporter at Shoeboxed. With Shoeboxed, you don’t have to make time to enter expenses manually into FreshBooks. Just snap a picture of your paper receipts, and Shoeboxed will automatically extract the data on the receipt so you can quickly add it to an invoice. You can also generate a PDF expense report anytime and submit it to your client and accountant. Learn more about Shoeboxed.

about the author

This is a guest post for the FreshBooks blog. FreshBooks is the #1 accounting software in the cloud designed to make billing painless for small businesses and their teams. Today, over 10 million small businesses use FreshBooks to effortlessly send professional looking invoices, organize expenses and track their billable time.