Rebilling
Charging a client for costs a business paid on its behalf, such as travel, materials or third-party fees, often with a markup.
In short
- Costs have to be tracked by client or project at the time they are incurred, or they get missed.
- Unbilled expenses are lost revenue. Rebilling late often means not rebilling at all.
- Sales tax usually applies to the rebilled amount, unless the business paid strictly as the client's agent.
Rebilling, also called recharging or passing through costs, means invoicing a client for expenses incurred while working for them. A consulting firm rebills flights and hotels, an architect rebills printing and permit fees, a contractor rebills materials, and an agency rebills media spend.
Making it work
The weak point is tracking. A cost can only be rebilled if someone knows, at the moment it is incurred, which client and project it belongs to. Expenses that are tagged later, or not at all, are often forgotten, and a cost nobody remembers to invoice becomes lost margin. Many service firms find that a meaningful share of billable expenses never reaches an invoice.
Markups and pass-through
Some contracts allow a handling markup, such as 10% on materials; others require costs to be passed through at cost with receipts attached. Clients increasingly ask for the underlying receipts. Keeping them with each rebillable expense saves time at invoicing.
Sales tax
In Canada, rebilled costs generally form part of the consideration for the business's own supply and are subject to GST/HST at the rate that applies to that supply. The exception is a true disbursement, where the business acted strictly as the client's agent, for example paying a government filing fee in the client's name. Getting this distinction wrong leads to under-charged tax.
Worked example
A project's rebillable costs
An engineering firm spends $3,860 on a client project in May: $2,140 in travel, $980 in lab testing and $740 in printing. Each expense was tagged to the project when captured. All three appear on the May invoice at cost plus a 5% handling fee, $4,053 before tax. Without project tags, the printing would likely have been missed.