Like many freelancers, I incur significant expenses in the course of my contracting work and have to on-charge these expenses to clients. Ideally I’d tick a box in my accounting application and that would allow that cost to flow through to a client invoice without me having to enter it in two places. One of the business that I have this particular need for uses Xero and I raised this issue on the excellent Xero LinkedIn group.
As I said in my post;
I do a lot of consulting work, and have significant numbers of expenses (both entered as expenses and rolled through from bank feeds) that need to be on-charged to clients. In an ideal world I’d tick a box in either the expense or the reconcile bank account window that would allow that cost to flow through to a client invoice without me having to enter it in two places..
The conversation generated a number of replies, with others suggesting workarounds or agreeing that this is a pain point. The commitment of some users was amazing with one person going so far as to design their own complex workaround with their accountant;
Set up a different Chart of Account for each client as a Current Asset – this will display your rechargeable costs as an asset on the balance sheet also removing it from your P&L. Each time you have a rechargeable cost run it through as an AP and put it against that account. You can also type into the reference box the client name for ease of reference. I apply the date of the cost on the cost date and the date of the expected invoice on the due date. When you invoice the client run a report called “Account Transactions”, selecting the relevant client account as above and the dates between which you wish to invoice. This can then be pdf’d into a nice looking document which shows all the detail in the description, from and dates boxes for every AP assigned to that account.
This pdf can then be sent in as an attachment to your regular AR invoice. Don’t enter the total into the AR as well or you will be double invoicing within Xero. When the money comes in you will then have to pay off each AP.
That’s a pretty intense piece of work for what is a very simple functional need. I’m always a little disturbed when businesses, especially small businesses who are time and resource constrained, have to design their own systems to automate what is, or at least should be a fairly standard process. I asked Xero CEO Rod Drury about this need and he agreed saying that;
[this is an] obvious hole to fill this year. Pretty easy just hasn’t hit the top of the priority list yet.
FreeAgent has beaten Xero to the mark and has rolled out its own solution to this problem. With FreeAgent’s solution, any kind of expense (out-of-pocket, bank transaction or bill) can be associated with a project (for a given client) from a super simple drop-down menu;
When a new invoice is created against that project, there is an option to automatically include any expenses associated with that
project which haven’t already been rebilled. Invoice items will be created for each expense. Once invoiced, the expenses drop out of the system and hence users have the security of knowing that expenses aren’t being charged for twice (or worse still, missed).
Aware that there are some complexities when on-charging expenses, FreeAgent users can also elect to rebill expenses with a certain markup, or at a fixed price, when they associate the expense with the project. And in a final piece of transparency assurance, FreeAgent also gives users the ability to attach copies of the relevant expense receipts when the invoice is emailed.
This is beautifully simple and fills the need of most of the users who commented on the original LinkedIn thread – it’ll be good to see Xero ramp up their development pace to accelerate the roll out of features like this.
(Cross-posted @ The Diversity Blog - SaaS, Cloud & Business Strategy)