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Deciding who pays for a client-related expense

Get general guidelines on when consultants or their clients should pay for such expenses as travel, necessary equipment and software, and paid software licenses.

We consultants have a hybrid relationship with our clients. We're working for them, yet we aren't technically part of their organization. Whenever an expense arises in the course of doing their work, the question of who pays for it arises, too.

Clients usually cover exceptional travel expenses, if they requested the travel. Sometimes, you can even bill (at least partially) for time spent on such travel. Travel expenses regularly include air fare, rental car, public transportation or cab, parking and tolls, hotel, and meals. Sometimes, though, I just eat the meals (dies laughing at his own lame joke). Do I really want my client looking over my shoulder to see what I'm eating, or how often? Sometimes I'll expense one or two meals a day, and cover the rest myself (especially evening cocktails). I don't want to give the impression that I'm out partying away their expense budget.

Consultants generally pay for routine travel to their clients' offices if they're local. Of course, as with any expense that you cover, you should build this travel into your fee. Even employees have to weigh the cost of daily transportation when they decide to accept a certain salary.

The questions arise when travel doesn't fall neatly into one of these two categories. If your client has an office that's 50 miles away and they ask you to visit them, would you charge them for travel expenses? How about 100 miles?

What about the equipment and software necessary to do the work? Software development consultants generally provide their own computer systems and software licenses, but as I look around my office I see two computer systems that belong to two of my clients. In each of those cases, the client wanted to isolate the work I do for them and allow me to connect to their VPN, so they provided a complete system to do that. Most of my other clients, though, have never bought hardware for me.

As a general rule, if you'll only use a piece of hardware for one client, then it may make sense for that client to pay for it. If you can use it for other business or personal uses, you should buy it yourself. You should certainly have at least one system that you call your own, not only to prove your independence to the IRS, but also to make it really so -- if your client pulls the plug, you don't want to find yourself without the means of performing any work.

The same principle works for paid software licenses. A lot of software is available these days for free, but sometimes a client will require that you use proprietary software for which someone must purchase a license. If they're the only client who would benefit from that, then they should reimburse you for that expense, or just buy it for you. If you'll use it for other business, it should be your expense. The biggest gray area that comes to mind is Microsoft's assortment of operating systems, developer tools, frameworks, and languages. Certainly you could serve multiple clients with that software, but what if you have only one client who requires it? Do you make them pay as a way of punishing them for not using free software? Or do you pony up $800 annually for Visual Studio Professional? The answer may lie in how much business this client will give you, as well as whether you want to develop more business that would use these tools.

When it comes to office space and supplies, the consultant should generally pay for these. If your client provides office space for you, they run the risk of qualifying you as a statutory employee and having to pay a big penalty (at least, here in the United States). These expenses are part of doing business, so if your consultancy is a real business, it should cover them. The exceptions, again, depend on clients that have special requirements. If, for example, a client contracts with you to develop software for a specific piece of office equipment that you would never use again, they should send one of those your way. I was going to use a computer-controlled death ray as an example, but heck, I'd have lots of uses for that. A printer that the client wants to resell to their customers, but which doesn't work with their software, is a real example from my past experience.

In general, I try not to nickel and dime my clients with petty expenses. It's far better to build those into your fee, especially since a higher fee doesn't proportionately drive off business -- in fact, it can even increase demand. I usually only request compensation when the expenses are both unusual and massive. How about you?

About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

15 comments
Al SA
Al SA

I know I'm late to the conversation but wanted to get some feedback regarding my unique situation. I run a mobile development studio mostly developing consumer and enterprise apps. I'm now living and working out of our development studios in South America instead of my California office. A client from New York is requesting I visit them since we haven't had any face to face contact and they would like to strengthen our business relationship as their app will be launching within the next month. They contacted me this week with flight information of a flight they would like me to take. Mind you this is a terrible flight, 13 hours travel time (8 hour lay over on Spirit Airlines)- nothing sounds worse. On top of that they are only willing to cover half of my travel and half of my hotel expense and expect me to leave 28 hours after I land on an equally terrible 15 hour flight back. 

I'm interested in doing what's best for my business but I'm sure shelling out $600 for my travel expenses for one day of meet and great is not worth my time. Whether it leads to further business is a crap shoot. 

Any suggestions on what I should do or how I should proceed?

cryaeger
cryaeger

Hi, I would like to hear how you handle negotiations with clients about travel by car of 50 to 100 miles that would fall outside the normal work day.

Techcited!
Techcited!

Chip, I do like what you say about the re-use of stuff. If I use somehting for more than one customer, then it really is my expense. If it is something particular for one customer, then I am inclined to bill that customer for the expense unless I absolutely know that I am going to reuse that item. For me with travel time, it's a 1.5 hour minimum for an on-site visit. That includes up to an hour of labor and 30 minutes travel. I only "bill" for the trip one-way. That comes from the days when I used to stack on-site appointments back-to-back. So it only seemed fair to bill customer A for the trip to their office, customer B for the trip to their office, etc. That way there was not double dipping. One thing I like to do as it relates to medfordmel's comment...I do charge for travel time for all on-site visits. Then, if I want to be generous, it is easy for me to toss a credit on the invoice for travel time waived. When I send the invoice, I can then point out my goodwill toward that customer, making good all the way around.

greg
greg

I have a 2 hr minimum if I come out, but there is rarely a need for that if a client has allowed rdp setup. When the gas went over $3 I billed extra 1/2 hr on appts over 20 mi. Never have had any issues with the charges from the clients.

medfordmel
medfordmel

For relatively local onsite visits, I never bill customers for trip charges, even though many in my area (Pittsburgh, PA) do so. Instead, I state up front that I charge a one-hour minimum for onsite visits. That makes the trip worth my time, and gives the customer an opportunity to make the most of the visit. For more outlying customers, I state a two-hour minimum up front, and they generally face a higher hourly rate than my more local customers. I'm happy to do two hours' work while I'm there though, because then it's worth the trip for both me and my customer. If I've completed the task for which they called me onsite before the minimum has passed, I make sure there's nothing else they need from me while I'm there, or just use the time to follow up with customers onsite, review system logs, etc. Incidentally, phone calls are a half-hour minimum. In addition to the documentation required, they're also either taking time away from another customer, or away from my personal time. In either case, it's an interruption of some other activity. It also makes the customer consider the consequence of their call. If it's not important enough to justify the charge, it can wait.

casey
casey

Chip - Good topic. All your comments are valid if kept in the context of how you choose to run your consulting practice. For my practice, my clients pay for everything that is germane to the engagement and all of it is negotiated up front. I've had engagements where I've billed for all travel - local or otherwise as well as temporary office space and equipment. For others, the rates have been all inclusive. Given a preference I prefer to bill separately for all "incidental" expenses, and if they require considerable administrative work (added reporting requirements, potentially large carrying costs, etc.) then negotiating a handling charge to compensate for the added bookkeeping effort. This is also a negotiating point for payment frequency and late payment penalties as I am operating a consultancy, not a bank.

TJ-PI2
TJ-PI2

In my travels for a client, I charge the government per diem, hotel, and mileage reimbursement rates (and declare that in my contract) unless something higher has been included in the contract.

Techcited!
Techcited!

cryaeger: For me, this would definitely be billable. This falls under the category of resources devoted to just this customer. In other words, for a client that is 50 - 100 miles away, I am likely going out to see them and only them. So I would bill for travel time at least one way if not both.

PMPsicle
PMPsicle

Have you worked for some of my clients? :D ]:)

l_creech
l_creech

And now that 122 Bar and Restaurant burned down, that rate might have to go up since the therapist will have to find a new place to get drunk after the session is over...

Sterling chip Camden
Sterling chip Camden

.... but every situation is different. Some regions have longer commutes for regular exmployees, so charging travel time for that distance might raise some eyebrows. On the other hand, with rising fuel prices, lots of employees are looking for alternate modes of transportation, thus justifying the perception that the distance is unreasonable and should be billed.