How to pass expenses through to customer?

Just been assessing Manager (desktop version) for my new sole-trader consulting business needs - looks great so far. I’ve figured out most things (I think), BUT I’ve got a query that I couldn’t find an answer in the forums. Hope you can help me:

Some clients I work for are on a time & materials basis - with expenses passed through to the client. Eg., I might do a day’s work for them at some rate - for arguments sake lets say $1k/day, and the expenses incurred might be Taxi for $25, hotel for $150, say. Those expenses (taxi, hotel) were paid with my credit card, inclsive of GST. The transactions for the taxi and hotel will therefore appear on my credit card / bank statement.

So … what I’m trying to do is

  • import the bank/credit-card statement data (description and amounts),

  • code the relevant transactions (the taxi and hotel charges) to the client’s “account” in Manager

  • at some relevant time (end of a “billing” period, maybe end of month - manually driven is OK), I’ll want to generate the sales invoice to this client that would read something like

  • Project work / 2 days (@$1k/day) / sub-total $2k

  • Materials consumed / inventory items “sold” to them as part of the job

  • Expenses … and somehow get a list of the relevant expenses that have been coded to the client’s account (the taxi, hotel, etc… - listing the ex.GST price since it gets added back in below)

  • sub-total for all elements (labour and expenses)

  • GST

  • Total payable

So the question is how do I correctly do all this? … or can I do this?

Note its important to map the transaction description information from the bank/credit-card imported data through to the listing on the invoice for each transaction - since it has the date, hotel information, etc., that are relevant in portraying to the client the professionalism of my business, ie., that I’m being transparent about the charges that are being passed through to them.

Ok, so anyone got any thoughts on how to do that?

Thanks so much! And congrats to the developers on a great looking product - I’ve been very impressed with your product today.

The problem is we are not there yet to make this workflow completely automated. Some modules are now being worked on such as Billable Time tab. There will be another tab called Billable Expenses.

Both of these tabs will allow you to keep track of what will eventually need to be invoiced to client (time spent on job, materials/inventory items consumed, billable expenses incurred).

If you check by end of April, you will be able to do all of this easily.

OK, thanks for that - looking forward to April!

In the interim, this is the workaround that I’ve come up with today. Its a little clunky, but will work (if I’m careful). Welcome anyone’s thoughts on this / how to improve.

So, I’ve got a client company, lets call them ACME, that I do work for, and in addition to billing them for my time/work I want to pass through various expenses that come into my accounts via some transaction somewhere (petty cash, or direct-deposit/transfer or a Credit-card charge on my card).

So the steps as follows:

  1. in [Settings > Chart of Accounts] created a new Assets account, called Expenses-ACME
  2. in [Settings > Custom] enabled “Sales Invoice Items” and Update
  3. in [Settings > Sales Invoice Items] created a new Sale item with the following attributes:
  • Name: ACME Expense Reimbursement
  • Description: ACME Expense Reimbursement
  • Unit Price: 1.00 (the theory being that I’m “selling” units of expenses, which are measured in dollars, so 1=1!)
  • Account: Expenses-ACME
  1. So then when relevant expenses come in that should be billed to ACME, they need to be coded to the Expenses-ACME asset account. It is an Asset account, since at the time of me incurring the expense on behalf of ACME, they owe me the funds, so it is in principle sort of like an “accounts receivable” account. When coding them to the Expenses-ACME account record the fact that GST/VAT has been paid - at whatever the appropriate rate is. So in Australia with GST at 10% … a $110 expense will show up after this as a $100 expense in this Expenses-ACME account. At the time of generating the invoice to pass this expense though to ACME, the GST will get added back in when my invoice to ACME adds its GST to that invoice. Hence I’ll fully recover the actual outlay, and my GST reconciliation (and BAS reports, etc.,) will be correct

  2. now in a complete hack, I’ve also added an “extra” $0.01 “expense” to the Expenses-ACME account, with description something like “a dummy expense, just to keep the account visible & accessible”, and dated at the beginning of the “job” with ACME. There might be another way to do this (see below) … but in my quick hack today this has sufficed.

  3. Now, to generate an invoice for ACME. as follows:

  4. First I need to know the total expenses to be billed to ACME for the relevant period of this next invoice. So go to [Summary] page, and in the [Other Assets] section will be listed the Expenses-ACME account, showing the currently outstanding expenses that are receivable from ACME. Click on that number to reveal the list of expenses coded to this account. This is a complete hack: highlight the “relevant” expenses to charge to the client, and copy to clipboard. Then paste into Excel/XLS, and eliminate any entries in that list that are not relevant (eg., payments, or expenses from dates that don’t match the period you’re invoicing for). Tote up the total amount to charge. Also from this XLS generate a PDF “report” that is the details of the expenses that you’re passing through to the client. YES, that’s right, cut-paste/Excel/manual report … a COMPLETE HACK.

  5. so, now go to [Sales Invoices] and start to make an invoice for the client. Enter anything that is normal (hours worked, other items etc.,.) - select “Split” to get additional line items on the invoice. So now when it comes to these expenses that I’m trying to pass through, on the sales invoice I select from the “Item” pulldown box the [ACME Expense Reimbursement] option (the thing created in step 3 above), and then, since the “Unit price” is set to $1, I make the [Qty] equal to the total expense amount to be recovered (as calculated in Step 7 above - note this is ex.GST), set the [Tax] rate to apply GST at the 10% rate … which then adds the GST back in, and bingo, I’ve got what I want.

  6. when I finally generate the invoice and send it to ACME, I need to also send the PDF of the expenses breakdown as generated from the XLS in step 7. above.

  7. When the invoice is generated, the expenses entry at step 8 above will create a credit transaction in the Expenses-ACME account for the total amount of those expenses billed to ACME. Assuming that I end up passing on all the expenses to the client, then this Expenses-ACME account will then have a nil balance. Excellent … just as it should be. However, on the [Summary > Other assets] page/section, if I have a nil balance this just shows a dash “-” there, indicating a nil balance … and there is no hyperlink there to get to the list of transactions on this account. So the other hack of a (rogue $0.01) dummy transaction introduced at step 5 above, leaves me with an always outstanding balance on this account of 1c … which is just enough to force Manager to provide a hyperlink that allows me to see the full list of transactions on this expense account. Dumb, but it gets me that list … and you have to know to ignore that $0.01 showing as an outstanding item.
    As an aside does anyone know how to get a listing of all transactions associated with a specific account? I’d have thought there would be a report that could generate that (you nominate what account you want to see) - but I couldn’t see it.

Boy what a mess … but it does work.

I suspect this is only workable whilst I don’t have too many historic entries in the account. I’m not sure how this series of hacks will work when I get some months into the process with lots of transactions. The step of managing the Excel bit will probably get to be messy.

And god forbid … who knows how to handle an error made in coding a given expense to one client (which is then billed to them) and only then discovered that the error was made. The correction of the original account coding obviously won’t/couldn’t propogate through all that manual stuff via Excel. Ho hum … just better be careful to get it right first time I suppose.

Anyhow, that’s enough from me on this for now.

Still waiting for Billable Expense

In reply to cenika’s earlier post:

I do this in a much simpler way. What I’m going to describe works for my small consulting operation, but may not work in everyone’s situation. It works for me because I only deal with a few projects at a time, so sorting expenses to customers isn’t difficult. My approach has only three steps:

  1. When I have billable expenses, I first record the actual payment transactions. These may involve spending money from cash on hand or cash at bank accounts. Or they may involve submitting expense claims. If it’s an expense claim, you will eventually reimburse it to the employee or clear to owner’s equity or a capital account, depending on how you are organized and your chart of accounts. Regardless, choose the appropriate expense account to debit for the transaction. No need for special sales invoice items.

  2. Second, I record accrued expenses that didn’t actually involve the movement of money as expense claims. The typical ones for me are mileage in my personal vehicle (no money changes hands, but I’m entitled under US law to deduct the expense) and per diem allowances. (Again, no money changes hands, but if I’m allowed to bill the client for such allowances, I need a way to record them. Your government taxing authority may or may not allow you to report expenses this way.) In this case, the actual spending of money on things covered by the per diem is a personal expense, not a business expense, and never gets recorded in Manager. For purposes of the business, the transaction is the accrual of the allowance.

  3. Third, I invoice the client for the expenses, listing the items from each involved expense account. You might decide you’d like the invoice to show each individual expense, or you might lump them with a reference to a travel expense report or similar documentation. This step transfers the amounts from the expense accounts to accounts receivable. When the invoice is paid by the client, accounts receivable is credited and whichever cash account you put the money into is debited.

While there are three separate phases to worry about, they make sense. The first records actual payments, necessary to keep cash accounts correct, whether or not you are invoicing immediately or waiting until the end of a project. The second phase doesn’t affect your cash position, but records transactions you need to support tax reporting and invoicing. Note that when expense claims are used this way, the expenses are equivalent to contributions of capital. The third phase creates an obligation of the client to reimburse you for those expenses.

When you are all done, the net change to expense accounts is zero, leaving those balances to represent expenses on behalf of your business rather than expenses on behalf of your client that have been reimbursed. This has particular advantages if you are in the USA, but also a potential problem.

The advantage comes because US tax law allows 100% deduction for business meals if adequately accounted for and reimbursed. An expense report and Manager satisfy the adequate accounting requirement. Payment of the invoice satisfies reimbursement. The remaining balance in a meals account will only be deductible at 50%. I’m sure rules vary elsewhere.

The potential problem is that a client may report to taxing authorities the full amount they have paid you, including reimbursed expenses. If you need to reconcile such tax reports against your actual revenue, you will need to report a deduction to offset the over-reported income. (This is a factor in the US with government matching of Forms 1099-MISC to reported income.)

Finally, if you are not able to bill the client for these expenses, simply stop after step 2. That keeps accounting for billable expenses identical to accounting for non-billable; you just don’t invoice the client.

Obviously, the disadvantage of my approach is that you cannot search for expenses linked to a specific client when preparing sales invoices. That’s why I hope Lubos still has plans to add a billable expenses module, as he has indicated in the past.

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One complication of implementing billable expenses, of course, is that it will need to be integrated with billable time. Currently, one cannot incorporate billable time into a sales invoice unless one begins in the billable time module. If billable expenses were implemented the same way, one would have to choose and couldn’t clear all necessary time and expenses. The best approach would be to have both billable time and billable expenses accessible from the sales invoices module, so when a new invoice is created, all options are available.

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Still waiting for billable expense module, and no one comments on these??

I’m currently working on Billable Expenses tab. I hope to make the first version available by end of this week.

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