Reimbursable expenses for freelancers: A starter for smarter spending

Elena Prokopets
Written by Elena Prokopets
on January 13, 2023

Money makes the world go round. A mark, a yen, a buck, or a pound is all that makes a happy freelancer go round in their chair when the client's check hits the bank account.

But…that excitement can easily deflate once you realize that you’ve already spent half of that money. 

Yikes, how did that happen?! Welp, someone either forgot to collect reimbursable expenses from the client or spent some cash out-of-pocket. 

This guide teaches you how to NOT make these mistakes anymore with a quick, no-in-depth-math-knowledge-needed introduction to reimbursement accounting practices. 

So what are reimbursable expenses for freelancers?

For freelancers, a reimbursable expense is spending you incur while delivering a service to a client or pursuing other business activities. Usually, you pay for these expenses out-of-pocket with your own cash. Then request reimbursement either from your business (as a registered legal entity) or from the client directly.  

Expense reimbursement is also a common practice for regular employees. Depending on the company’s policy you might get money back for work equipment purchases, business travel, public transport passes, professional training courses, etc. 

There is, however, a limit to what constitutes a reimbursable expense. Though as CFOs admit, people often push the envelope on this matter. Some of the actual (audacious) expenses submitted by employees included a vacation trip to Italy, a bear rug, a pogo stick, and moving to a horse trailer (why?? 😲). 

One of the many differences between employees and independent contractors (freelancers) is how solos can deal with reimbursable expenses. 

Freelancers have two ways to collect reimbursable expenses: 

  • From their company e.g. when you paid for a new laptop with a personal credit card. 
  • From the client e.g. when you purchased premium video footage on the client’s behalf with your business funds. 

 

That said, just like with regular employees, your expense requests should be reasonably related to your line of business. 

To better illustrate the above, here’s a quick story about Dianna, the freelance designer. 

A restaurant owner hired Dianna to create a new brand identity for them. The project scope includes doing a logo, a new menu design, and a website design refresh. Dianna needs new food and staff pictures for this. The client doesn’t have ‘em yet, so she accepts Dianna’s referral to a freelance photographer. Dianna pays the photographer’s advance out-of-pocket and later submits the sum for reimbursement to the client (who also foots the final photographer bill).

In the meantime, Dinna focuses on logo design. She found an ideal sans serif font, but it’s paid. She purchases the font with her personal PayPal account. Later she reimburses the font purchase through her e-Residency company

Everything is done. The client is so happy that she invites Dianna two days before the grand opening to hand-paint the new logo at the venue. Since the restaurant is in another city, Dianna has to stay somewhere overnight. She books a hotel with her personal card (reimbursable business travel expenses).

Dianna also wants to look smart at the restaurant opening event to which she was invited.  So she spends the evening browsing for a cocktail dress online (which sadly won’t count as a valid business expense for reimbursement), and neither will a pet sitter she has to hire for her Tabby, who didn’t count as a plus one. 

Examples of reimbursable expenses for freelancers

Though not every hustle is alike, many freelancers incur similar types of reimbursable expenses. 

  • Business travel costs (hotels, airfare, car rentals, etc)
  • Digital product/services purchases
  • Website hosting and domain name
  • Professional subscriptions, tools, software
  • Work equipment purchases or rentals such as laptop, camera, tablet, etc.
  • Coworking space rentals
  • Research materials, premium reports, access to databases, etc.
  • Professional training, licenses, education
  • Business advertising costs
  • Subcontractor payments

Do expense reimbursements count as freelance revenue?

No, in most cases, billable expense reimbursement doesn’t count as extra revenue since well, you aren’t making any money. First, you spend some business cash (and record this as a business expense). Next, the client reimburses you for the same sum. The client reimbursement and expense cancel each other. 

The matters are a bit more complex when you reimburse out-of-pocket expenses from your business (as a legal entity). Most tax authorities don’t treat such reimbursements as taxable personal income. However, it’s always best to double-check with a local authority or an accounting services provider. 

Freelance reimbursement accounting 101: 4 quick how-tos 

Now that you know what you can legally expense, let’s get you up to speed on bookkeeping best practices.

Promise, it’s easy even if you are slightly math-challenged like me 🙂.

How to account for reimbursable expenses

To properly reflect reimbursable expenses in your books, you need to record them as a contra expense account.

A contra expense account is a double entry showing how a certain debit (payment) offsets a specific credit (expense) account, resulting in a net zero effect.

To give you extra context, here’s a sample reimbursable expense record: 

Credit

Premium stock photo purchase 

- $150 

Debit

Client reimbursement 

+ $150 

Total: 

0

 

In other words: you first record a billable client expense as a business expense. When the client reimburses you for it, you mark the transaction as revenue.

Then you pair them up and create a contra expense account to show their relations. 

Your goal is to show that the final balance didn’t change because of these two transactions. It effectively stayed the same. 

How to categorize reimbursed expenses

At the most basic level, you should categorize all reimbursable expenses as 

  • Billable client expenses 
  • Reimbursable business expenses 

 

For extra convenience, you can create specific tags for them for easier tracking and reporting. For example, your system can include something like

  • Travel 
  • Material purchases 
  • Subcontractor 
  • Operating expenses 
  • Etc. 

 

Categories help you flag these expenses during your weekly/monthly financial review sessions — and then generate the right expense reimbursement requests. 

To effectively track reimbursable expenses as a freelancer, you can create a simple categorization system in Excel or Notion. But if you aren’t a fan of spreadsheets, try Xolo Go instead. Xolo Go is a not-your-average freelance invoicing solution because we let you:

  • “Rent” a part of Xolo’s company to invoice clients like a legal entity (without registering one!) 
  • Generate multi-currency, VAT-compliant customer invoices and get paid to a Xolo bank account 
  • Track, manage, and reimburse billable client expenses and out-of-pocket expenses with your company funds. 

 

….And receive neat accounting reports that make your tax time substantially easier 😉. 

How to record expenses paid on behalf of a client

To avoid any misunderstandings, always collect proof of payment (invoice or receipt) for all billable client expenses. 

Proof documents should be either in your name (or your company name). This way, they won’t be rejected by the client’s accounting specialist who’s probably lacking context into the arrangements you’ve privately made. 

Some clients may also have a specific expense reimbursement request process. For example, they might have a premade template or an online submission form. 

If not, you make a reusable template where you’ll include an itemized list of expenses with the total sum due. Here’s a sample freelance expense report template you can swipe: 

Payment date

Payment method

Description

Paid to

Amount Paid ($)

15/08/2022

Debit card

Premium stock photos

Depositphotos

$25 

 

Then pack all your receipts into a shareable Google folder and forward them to a client. 

How to charge clients for reimbursable expenses

You have different ways to bill clients for reimbursable expenses: 

  • Create a standalone request for expense reimbursement 
  • Add the billable expense reimbursements to the client invoice 

 

If you choose to invoice clients for reimbursable expenses along with the other services, make sure to draw a clear distinction between the two. 

For example

 

Type

Description

Price 

VAT Rate 

1

Professional Service

Restaurant website design

$10,000

0% 

2

Expense Reimbursement

Premium stock photos

$150

0% 

 

Invoice total: $10,150 

Ultimately, you should ask the client how they prefer to be charged for billable expenses. They might have a preferred process, based on their accounting system. Going with their option typically means you’ll get reimbursed sooner than later. 

Capture, record, reimburse as a freelancer 

When it comes to expense management, diligence is key. 

Once the money leaves your bank account, record the transaction date, value, and purpose (i.e. what you’ve spent your cash on). 

Then save the receipt or request a business invoice and store it in a dedicated folder. For billable client expenses, create a calendar entry for when you’ll ask to get reimbursed (unless you plan to do so instantly).For out-of-pocket expense reimbursements, decide whether you need the money now or can pay yourself later if your cash balance is low. 

And if you rather not do all of those things manually, there’s Xolo Go and its amazing accounting team to help you out!  

the freelancer's favorite pay-as-you-go invoicing tool

About Elena

Elena Prokopets writes content for tech-led companies & software development businesses, marketing to them. Her empathy for the customer, expertise in SEO, and knack for storytelling help create content that ranks well and drives industry conversations.

Elena uses Xolo Leap so she can focus on her solo B2B content writing business without stressing over the compliance and admin overhead.