Introduction
Billable expenses are costs your business incurs on behalf of a customer that you later recover through invoicing. Setting up and managing billable expenses in Xero ensures you accurately track recoverable costs and include them on your customer invoices. This feature is especially useful for service-based businesses that regularly purchase items, travel, or incur project-related costs for clients.
This guide explains:
How to set up billable expenses in Xero
How to issue a sales invoice to customers with billable expenses
How to Set Up Billable Expenses in Xero
To record expenses that can be billed back to a customer, you first need to enable and allocate billable tracking on your expense accounts.
Step 1: From the dashboard, go to Purchases, choose Bills.
Step 2: Click New Bill.
Step 3: Fill in the bill details such as supplier name, date, description, quantity, and price. Under the line item, click Assign expenses to a customer or project.
Step 4: Search for the customer name or project and select.
Step 5: Tick the box next to the expense items you want and click Assign.
Step 6: Review your entries and click OK to confirm.
Step 7: The description will now display Billable notes. Click Approve to finalise and record the bill.
Now, these costs will be tracked as billable and can later be included in a customer invoice.
How to Issue a Sales Invoice to a Customer With Billable Expenses in Xero?
Once your billable expenses have been recorded, you can create a sales invoice that includes those recoverable costs.
Step 1: From the dashboard, go to Sales, choose Invoices.
Step 2: Click New Invoice.
Step 3: In the Contact field, search and select the customer linked to the billable expenses. Then, fill in the rest of the invoice field.
Step 4: Xero will display a prompt or link showing “Billable Expenses available” for that customer. Click to view or add them.
Step 5: Select the expenses you wish to include on the invoice and click Add as one item. You can review descriptions, dates, and amounts before adding them.
Step 6: Xero will automatically pull the billable expenses into the invoice lines, including descriptions and tax details.
Step 7: Review the invoice for accuracy. Adjust line descriptions or amounts if needed.
Step 8: Attach any supporting documents (e.g., receipts or purchase invoices) for customer reference.
Step 9: Click Approve to finalise the invoice.
Frequently Asked Questions (FAQs) about Billable Expenses in Xero
Q: Can I assign expenses to a customer after creating a bill?
A: Yes, you can open an existing bill and assign its line items to a customer or project, as long as it’s not already marked as paid.
Q: What happens when I mark an expense as billable?
A: When you mark an expense as billable, it becomes available to add to a customer’s sales invoice. This ensures you recover the cost from the client.
Q: Can I edit a billable expense after invoicing it to a customer?
A: No, once a billable expense is included on a customer invoice, it’s locked for editing. You’ll need to void the invoice first to make changes.
Q: How do I track which expenses have been billed to customers?
A: Xero automatically tracks billed and unbilled expenses. You can view them under the customer or project details to see which costs are pending invoicing.
Q: Can I make an expense non-billable later?
A: Yes, you can remove the billable assignment before it’s invoiced. Simply edit the bill and unassign it from the customer or project.
Q: Do billable expenses include tax when recharged to customers?
A: The tax applied depends on how you set up the customer invoice. Xero lets you adjust the tax rate when adding billable expenses to ensure correct GST treatment.
Q: Will deleting a bill also remove the billable expense from the customer?
A: Yes, deleting or voiding a bill automatically removes its related billable expense from the customer or project record.
Q: Can I assign billable expenses to multiple customers or projects?
A: No, each bill line item can only be assigned to one customer or project at a time.
Conclusion
Setting up billable expenses in Xero helps you easily recover client-related costs by linking them directly to invoices. Once configured, this process ensures all billable items are tracked accurately, included in customer billing, and reflected in your financial reports — improving both cost recovery and cash flow.