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Reimbursable expenses are charges that you accrue when working for a client or an employer. They are the costs that come with completing a job or task. Instead of paying for those charges out of pocket, you will submit the costs to your employer or client for repayment—often with copies of the receipts.

Keeping track of reimbursable expenses is important if you want to save money and manage your business effectively. Let’s review some common reimbursable expenses and how to get paid for them.

What Does Reimbursable Mean?

You may encounter many examples of reimbursable expenses within your business. For example, if an employee travels to a conference for work, they can report the hotel stay and airfare as a reimbursable expense if they pay for those travel costs with their personal accounts. If an employee visits a print shop or picks up catering ahead of a staff meeting, these charges may also be reimbursable expenses. 

Companies need to set clear guidelines for what counts as reimbursable. For example, most companies have guidelines for reimbursing mileage rates when employees use personal vehicles for business purposes. They also set per diem amounts for what employees can spend when they travel. These guidelines prevent team members from spending $200 at a steakhouse and then asking their employer to pay them for it. 

Most businesses will ask employees to gain approval on costs before charging them. This prevents conflict between employees who have already spent the money and employers who didn’t approve the costs. Pre-approval can also speed up the reimbursement process.  

How Do You Invoice for Reimbursable Expenses?

Typically, each reimbursement invoice will have the same pieces of information for company review. These can include:

• The purpose of the charges (ex. February conference)
• The category of the expense (ex. Hotel stays, gas mileage, printing costs, etc.)
• The cost of each expense (ex. $250 for hotel stays, $50 for gas, etc.)
• The date of the expense
• Receipts for each of the charges confirming the amount, the items purchased, and the date.

If you operate a business where you frequently reimburse employees, or if you seek out reimbursements from clients, consider downloading an app that specifically records business expenses. 

There are tools like BizXpenseTracker and Expensify where you can scan receipts and record expenses while you are on the road. You can even auto-generate invoices and send them to clients from the app. This can save money and reduce the frustration of filling out invoices after a trip. 

Are Reimbursable Expenses Income?

For example, let’s say you ask an employee to order business cards with a plan to reimburse them. The employee doesn’t profit from the business cards and doesn’t get any money from the process of buying them. They essentially loan your business money by paying for it out of pocket. You are not paying them a salary to purchase the business cards but rather repaying them for the cost of doing business. 

Reimbursements should not be recorded as income because it will have tax implications if that is how it’s organized. Your employee is not earning higher wages because of the reimbursement, so it shouldn’t be considered income.

Are Reimbursable Expenses Taxable?

First, this is not actual income. You are simply paying employees back for your cost of doing business. Next, employees use their already-taxed income to pay for your business expenses. Adding taxes to that is double-taxation. 

As an employer, it’s up to you to make sure you separate your reimbursable income from your wages. It may be convenient to combine invoices or include reimbursements in payroll, but this can make your taxes more complicated when you submit them. You can’t expect to remember which income is reimbursed, and your accountant won’t know either. 

Instead, continue to pay employee wages as you normally would, even if your team members are owed reimbursements. Then, create a separate accounts payable account for team reimbursements. 

Your accounting department can write checks to your employees (or deposit them directly from your account) in order to keep the funds separate. This way when you submit W-2 or 1099 forms in the spring, the business expenses won’t be part of the income. 

Keeping separate accounts can also protect your business. If you are audited by the IRS, you can prove that your wages are accurately reported and your reimbursable expenses are organized and paid out. 

Categorize Your Expenses With Lendio's Software

With Lendio's software, we have auto-categorization features that can help you sort through your expenses. With just a few minutes each day, you can stay on top of your books. Try our service out to see how you like it—it’s free for small businesses. 

As a business owner, you have a lot of financial matters to balance. Maintaining financial health, stability, and growth involves calculating many different metrics to make sure your business is on the right track to hit the goals you’ve set for yourself.

An important metric to track within this process is your business’s cash conversion cycle. This number can help you understand how well you’re managing the process of buying inventory, collecting payments from customers or clients, and then paying your vendors for that inventory. 

Getting a better grasp of the cash conversion cycle and how it demonstrates the financial health of your business can help you stay on top of cash flow and inventory management, among many other important facets of your operations. 

Let’s explore the cash conversion cycle, how to calculate it, what a good cash conversion cycle looks like, and why this metric matters to your business.

What Is the Cash Conversion Cycle?

In other words, the cash conversion cycle tells you how much time is between paying for inventory and/or supplies and getting paid by customers or clients.

Typically, you only calculate your CCC if you run a business that regularly handles inventory or materials, such as a retail business or construction company.

You may also know this metric by its other names—cash cycle, cash-to-cash cycle, or net operating cycle. However, it shouldn’t be confused with the operating cycle, which is a different metric altogether. 

Operating cycle refers to the total number of days between when you purchase inventory and when customers pay for the inventory. In contrast, net operating cycle (aka CCC) is the length of time between actually paying for the inventory and collecting the payments from customers who’ve purchased inventory. This timeframe can include net-terms with you and vendors or your customers.

How Do You Calculate Cash Conversion Cycle?

• Revenue
• Cost of Goods Sold (COGS)
• Starting and ending Accounts Receivable (AR)
• Starting and ending Accounts Payable (AP)

Here are the 3 elements that make up the CCC formula and how to calculate them:

Days Inventory Outstanding (DIO): This number is the average time it takes to convert inventory into goods you then sell. Find the DIO by taking your average inventory for the period you’re measuring, divide it by the COGS, and then multiply by the number of days in the period you’re measuring.

• (Beginning inventory + ending inventory) / 2 = Average inventory
• (Average inventory/COGS) x number of days in period = DIO

• (Beginning AR + Ending AR) / 2 = Average AR
• (Average AR / net sales) x number of days in period = DSO

• (Beginning AP + Ending AP) / 2 = Average AP

• (Average AP / COGS) x number of days in period = DPO

• Beginning inventory + Purchases - Ending inventory = Cost of Sales
• Average AP / (Cost of Sales / number of days in period)

• DIO + DSO - DPO = CCC

What Makes a Good Cash Conversion Cycle?

That means the goal is to have as low of a CCC as possible to ensure the best possible financial health of your business. Having a negative CCC is even better because it means your cash isn’t tied up for long at all. In fact, there’s no time spent waiting to get paid. 

However, it’s important to note that online retail businesses are more likely than others to have a negative CCC. That’s because these businesses typically use drop shipping, meaning they don’t hold inventory and don’t have to pay for inventory until customers pay them first. This process also helps e-commerce stores manage a lot of the working capital problems that come with traditional brick-and-mortar retailers.

Here are some elements that make up a good CCC:

• Lower inventory turnover
• Correctly forecasted inventory needs
• Collecting outstanding payments on time
• Paying bills more slowly than collecting payments

Why Your CCC Is Important

You also can use your CCC to compare your business’s financial state to that of your competitors. It can give you a better idea of where you stand in terms of business practices and market share.

When your CCC is solid, it often means that you are managing your business operations, including inventory acquisition, turnover, and client or customer payments, well. That can make you feel more confident about the state of your business.

The Paycheck Protection Program (PPP) effectively kept the small business economy afloat over the last 15 months, pumping nearly $800 billion into an estimated 12 million businesses across the US. But the PPP loan money ran out just a month after the program’s deadline was extended in March, and those crucially important potentially forgivable loans are no longer available to help small businesses.

Recent months have still not been easy, even with the lifting of restrictions. While many businesses are reopening, the costs of reopening are making for anything but business-as-usual. Supply chains are broken, staffing is tremendously difficult, and this is not the dream reopening business owners had hoped for during the long slog of COVID-19 closures. 

PPP is no longer available, but other forms of loans, microloans, grants, and debt relief are available to your small business. Most of these are administered by the government agency US Small Business Administration, and many are COVID-19 relief programs that offer loan forgiveness or other cost-cutting accommodations that take into account the current economic challenges. Let’s look at some PPP alternatives that could still offer your small business economic aid for any loss of revenue you’ve suffered under COVID-19. 

COVID-19 EIDL

The COVID-19 Economic Injury Disaster Loan (EIDL) “provides economic relief to small businesses and nonprofit organizations that are currently experiencing a temporary loss of revenue” because of the pandemic, according to the SBA. EIDLs had existed before COVID-19, but the program was recently bolstered to provide more economic help for small businesses. Traditionally providing loans of up to $150,000, EIDLs can now potentially triple in size to $500,000, and your first repayment date won’t be for another 18 months. While interest is charged on these loans, it’s a low fixed rate of 3.75% for businesses and 2.75% for nonprofits.

Other relief funds in the EIDL program may be available if you’ve already applied for an EIDL. The Targeted EIDL Advance Grant provides up to $10,000 to businesses with 300 or fewer employees, that can show a 30% loss in revenue for any 2-month period of the pandemic, and are located in a low-income community (you can use this map to determine your community’s status). Similarly, the Supplemental Targeted Advance could provide an additional $5,000 that does not have to be paid back, but it’s only for businesses with 10 or fewer employees.

Other SBA Loans

• SBA Express Loan - The quickest, easiest, and most flexible of these loans, and the SBA responds to SBA Express Loan applications within 36 hours. The funds can be used on working capital, a line of credit, or a commercial real estate loan.
• 7(a) Loans and Microloans - These SBA loans are primarily intended for purchases involving real estate but can also be used for working capital, refinancing debt, or buying furniture and supplies.
• SBA 504 Loan - The SBA 504 Loan is intended to finance large projects that create additional jobs. Funds are meant to finance purchasing or constructing buildings and buying or modernizing facilities. 

Shuttered Venue Operators Grant

This program has worked out pretty well, and most of the fund is still waiting to be awarded. According to the SBA’s mid-July figures, only $5 billion of the total has been awarded, though the SBA has received nearly $12 billion requested in applications. The funds may start to disappear fast.

Restaurant Revitalization Fund

It’s a reminder that as helpful as government relief programs can be, they can still be thwarted by legislative uncertainty. Private lenders may offer less confusion and red tape, and an online lending marketplace can help you find the right small business loan.

Online Small Business Loans

There are a number of factors you may want to consider before taking out a loan. Consider your business’s creditworthiness, whether you’ll be willing to offer collateral, and what your specific plans are for the loan. And do be ready to dig up and present a fair amount of bookkeeping documentation. But you may find other COVID-19 relief for your small business—and maybe without the headaches of previous loan programs.

Along with the growth and diversification of the US economy came the need for more organization and data relating to tracking registered businesses. The Department of Labor, Chamber of Commerce, and Census Bureau were all curious about the trends of businesses within different industries.

With these goals in mind, the government developed codes for company identification. Learn more about SIC codes and NAICS codes below. 

What Is a SIC Code?

SIC stands for Standard Industrial Classification and refers to a 4-digit coding system that categorized businesses based on their activities. These codes differentiate macro industries (like mining versus agriculture) along with smaller differences (like soy farming versus corn farming).   

SIC codes were created by the United States government in 1937 to better analyze economic activity across the country. 

What Is a NAICS Code?

NAICS codes are very similar to SIC codes. In fact, NAICS (North American Industry Classification System) replaced the SIC system for the most part in 1997. The NAICS code was developed as part of the North American Free Trade Agreement with the United States, Canada, and Mexico. 

NAICS codes are 6-digit codes that identify your business type. You will use your NAICS code for a variety of purposes to identify your industry.

How Do I Find My Company’s SIC Code?

The US Department of Labor has a SIC code lookup tool you can use. You can either search by SIC code or enter a few keywords to find the SIC code you need. This database uses the 1987 version of SIC guidelines.  

How Do I Find My Company’s NAICS Code?

The NAICS Association has a code lookup tool and a company lookup tool. You can identify your newly formed company with this search system or look up codes for your existing business. The website starts with high-level categories and lets you drill down to specific industries and business types. 

Know Your SIC and NAICS Code

If you work for a modern business, you might not have a SIC code. You might just use the NAICS system. This is a self-identification system, so you can label your business as you choose. It is important to know your NAICS code to set up certain financial accounts and to report your business to the government. 

A letter of credit is a statement by a bank or financial institution on behalf of a customer. This is typically used in B2B transactions when one company wants to assure another that it will pay the full amount agreed to in the transaction. When your business receives a letter of credit, it comes with the promise that the bank will pay the balance owed in full, even if the customer cannot. 

A letter of credit can be used to move a sale forward. The letter recipient can rest assured knowing that they’ll receive payment, and the buyer can receive the goods they need to grow their business. 

Learn more about the process of issuing and receiving a letter of credit during a sale. 

Defining a letter of credit.

A letter of credit is defined as “a statement issued by a bank to the buyer of a good stating that the seller will receive payment on time and in the correct amount.” You might also see the term “irrevocable letter of credit” to describe this financial concept. 

Letters of credit are often used for major business transactions. When you’re purchasing thousands of dollars in goods, it helps to have the backing of a bank to prove that your vendor will get paid. If you don’t have the funds on hand to make the purchase, this letter can ensure that your vendor gets paid on time—given the net terms established in the contract. 

Because small businesses typically don’t have a lot of working capital around to cover materials or inventory, they usually purchase on credit—and a letter of credit from a bank can provide peace of mind to vendors that they’ll be paid in full.

These letters are more common with international trade. When companies work with customers in different countries, they’ll receive letters of credit from banks—often international firms that specialize in trade—proving that the companies they work with are good for the money.  

Who issues a letter of credit?

The most common source for a letter of credit is a national or international bank. These companies are used to working with large businesses and enterprises that engage in large-scale trade. 

The letter of credit will often cover more than just the payment amount to the seller. It will also include important details that are relevant to the exchange of goods. For example, it will include when the business will receive payment (before the delivery of goods, after, or half-and-half) and when the seller will deliver the goods to the buyer. These terms were likely already discussed by the two companies involved, but the bank will work to confirm the details. 

Like any other loan, there is a process to issuing letters of credit. The bank will conduct background checks on the buying company, check the credit of the business, and possibly ask for deposits as a way to hold the company accountable. These steps all reduce the risk levels of issuing a letter of credit and increase the chances of repayment. 

While it can take time to issue a letter of credit, it still allows buyers to get the goods they need faster so they can continue operating their businesses.   

What is the cost of an irrevocable letter of credit?

Banks agree to issue irrevocable letters of credit because they profit directly from funding the transaction. This is no different from a bank issuing a loan or mortgage: they’re happy to provide the money because they benefit from the interest you pay on the loan. 

The standard cost of a letter of credit is around 0.75% of the total purchase cost. For letters that are in the 6 figures (typically around $250,000), these fees can add up and benefit the bank. In some cases, the letter of credit commission could fall close to 1.5%. 

The buyer typically picks up the costs associated with the letter of credit. However, the seller may receive some charges as well. These include charges related to wire transfer costs, courier fees, and bank fees. By the time the transfer is complete, the seller can expect to pay between 5 to 10 fees—most ranging from $25–$150. 

On top of the fees, the buyer will typically need to put down a deposit on the letter of credit. This is usually around 1%. A deposit proves that the buyer is serious about repaying the rest of the money to the bank.   

Know your funding options.

Letters of credit aren’t limited to international trade deals worth hundreds of thousands. You may be able to use this option as a way to buy materials and close deals with local vendors. If you need cash to complete business purchases, talk to your local bank—they can walk you through the letter of credit process. 

Alternatively, you can look for short term loans and other funding choices to increase the capital of your business. Explore the online loan center at Lendio to find financial institutions that want to help you. Use our services to grow your business. 

In 1962, Dun and Bradstreet—a credit company—established the Data Universal Numbering System (DUNS). This unique numbering system links more than 280 million businesses worldwide. 

A DUNS number is a 9-digit identifier that can be assigned to all business types within all industries. Corporations, sole proprietors, nonprofits, and government offices can all use DUNS numbers. 

Learn more about a DUNS number—and how it can help your business. 

Why do I need a DUNS number?

There are many uses for a DUNS number that prove its value. Because there is no cost to requesting a DUNS number, you may want to acquire one now so you have it when the need arises. A few examples of when you will need a DUNS number include:

• If your business wants to pursue government contracts and federal work. 
• If your business is applying for grants through the federal government (especially the US Office of Management and Budget, or OMB).
• If you plan to expand your business globally—and especially if you plan to work with national governments. Some United Nations offices require DUNS numbers when submitting contracts. 

Many American business owners use an Employer Identification Number (EIN) from the IRS as an identifier. While an EIN is useful, it is limited to the United States. A DUNS number can be shared globally, providing greater value as your organization expands. Furthermore, an EIN only identifies the business owner, while a DUNS number identifies the business as a whole.  

How do I get a DUNS number?

You can request a DUNS number from the Dun and Bradstreet Corporation. There is currently no cost to request a number, and the company prides itself on its ability to deliver numbers to companies quickly. You can receive your number in about 30 business days, but the company offers some options to expedite the process. 

If you work for an organization that might already have a moniker, you can use the DUNS number lookup to see if your business is already registered. You can also look up other companies to see if they have registered as well. 

Can I use my DUNS number instead of my Social Security number?

A DUNS number is not a replacement for an EIN or Social Security number (SSN) for lending and application purposes. When you apply for a business credit card or loan, you will need to provide your EIN and possibly your SSN because a business cannot apply for credit, but a business owner—or authorized treasurer—can. 

DUNS numbers serve as supplemental identifiers. To prove your identity, you will need to share additional information. 

Learn when to use your DUNS number.

If you are still unsure whether you need a DUNS number, talk with a business consultant who specializes in your field. They can provide advice as to whether you could benefit from acquiring a DUNS number. 

Because acquiring a DUNS number is free, you may benefit from requesting now—in case you ever need it in the future.

The entrepreneurial traditions of America often idolize individuals who built companies that would ultimately bear their names. We all know about Henry Ford, John D. Rockefeller, and Cornelius Vanderbilt—but can anyone name a single executive who served alongside these leaders? Probably not because there sadly isn’t much room for additional names in the pantheon of success. Triumphs are attributed to the person whose name is on the front of the building, regardless of who is truly responsible for them.

If there’s a benefit to these myths, it’s that young people can easily identify role models. By learning about legendary strategies and innovations, these aspiring business owners can begin to gain their own momentum long before they file for a business license.

But many issues arise from misguided hero worship. It disenfranchises thousands of talented contributors while also lionizing flawed individuals who might not be deserving of such lavish praise. And, most troubling, it continues the centuries-long process of driving a wedge between the elite of business and their employees.

“The gap in wealth in the United States between the ultrawealthy and everyone else has reached its widest point in decades,” reports research by Peter Walsh, Michael Peck, and Ibon Zugasti, a trio of financial experts. “One way to narrow the divide is through the use of worker buyouts, in which ownership of a company transfers from a single person or a small number of people to the workers of the company. Currently, about 10% of Americans hold equity stakes in their workplaces. By providing more workers and employees with opportunities to buy shares, companies can help workers and communities raise their standard of living and simultaneously feel more invested—literally—in the success of the enterprise.”

There’s a symbiotic relationship that occurs in employee-owned companies. First, the employees are empowered through ownership. They are given more opportunities to thrive financially, which benefits their families and communities. In this way, the wealth gap loses some of its sting, as the positive impacts of employee ownership ripple out through future generations.

As with business changes like embracing remote-work arrangements or offering mental health benefits, there are definitely some up-front costs associated with forming an employee-owned company—but rest assured that they can be more than repaid over time. For example, employee-owned companies often outperform their competitors. And they really show their mettle during times of duress, such as the lockdown of 2020. When employees have skin in the game, it stands to reason that they’re more motivated to dig in and find solutions.

So rather than a 1-sided deal, employee ownership becomes another entry in the Michael Scott Win-Win-Win Hall of Fame. In reality, any business owner who views employee ownership as an outright threat probably hasn’t done any research.

What Is an Employee-Owned Company?

While nearly all business owners compensate their employees with money, an employee-owned company also provides them with stock. But it’s not just any stock—it’s stock in the company where they work. This means that an Employee Stock Ownership Plan (ESOP) makes employees shareholders, giving them a powerful incentive to perform.

According to the National Center for Employee Ownership, the number of employee-owned companies is on the rise. Check out these key statistics:

• There are 6,501 ESOPs in the US
• Their assets exceed $1.4 trillion
• ESOPs have 14 million participants
• 22% of ESOPs are in the manufacturing industry
• 19% of ESOPs are in the science and tech industry
• Texas has the most ESOPs, followed by California and Florida
• Wyoming has the fewest ESOPs

The nuts and bolts of running your ESOP can be customized to your business. For example, you might want to determine the compensation of stock by how long each employee has been with your company. Another option would be to base the stock compensation on your employees’ hourly pay or salary.

Likewise, you can choose whether to have a gradual vesting period (such as a 20% increase every year for 5 years) or a 3-year waiting period before a total vestment. Employees can then hold onto their stocks until they choose to sell. Both of these approaches have unique benefits, so it’s important to talk to your business mentor and other experts to gain insights on how to proceed.

The Broader Benefits of Employee-Owned Companies

Because of the devastation of the COVID-19 pandemic, the United States could definitely use the collaborative boosts provided by ESOPs. It’s a chance for employers to share the rewards of success in a new way, which makes it possible for everyone to prosper.

“Within the next decade, we expect worker- and employee-owned companies to grow in popularity thanks to 3 mutually reinforcing trends,” explain Walsh, Peck, and Zugasti. “First, renewed interest in ensuring the economic viability of local communities suggests that baby boomer owners about to retire are increasingly likely to want to sell to workers. Second, evidence is mounting that worker- and employee-owned enterprises outperform their competitors, especially during economic downturns; a recent Rutgers study found that converting to worker and employee ownership boosts profits by as much as 14%. Third, as a result of strong performances by worker- and employee-owned companies, it is becoming easier for workers to overcome arguably the biggest hurdle to worker buyouts: financing.”

As ESOPs become more commonplace, you can anticipate a corresponding rise in interest from employees at companies that aren’t following that model. If your business is considering it as an option, this is a great time to conduct more research and see if it’s a wise move.

Perhaps you have compelling reasons not to transition to an ESOP—that’s completely understandable. Just be prepared to communicate those reasons to your employees, helping them to see your perspective and including them in your conversations regarding the topic.