Tracking hard costs and soft costs is a useful tool for financial management. These terms help differentiate between direct expenses incurred on behalf of clients and the firm's operational costs in your accounting software (Xero or MYOB).
What are hard costs?
Hard costs are costs paid directly to the supplier on behalf of a client. These costs can be included on the client invoice when used in conjunction with anticipated disbursements.
Examples of Hard costs:
- Court filing fees
- Expert fees
What are soft costs?
Soft costs are costs that your firm can choose to pass to the client. These costs are typically harder to allocate to a specific client and may be covered through the firm’s hourly rates or fixed fees.
Examples of Soft Costs:
- In-house photocopying, printing, or scanning
- Postage
Setting up hard and soft costs in Smokeball
Accounting software mapping
It is possible to set up hard and soft costs for both cost recoveries and offices payments/cost liabilities in the Xero or MYOB settings in the Smokeball Web App.
We recommend setting up the integration in consultation with your accountant or bookkeeper.
If hard and soft costs don’t apply to your firm’s accounting processes; for both hard and soft costs, select the same income (cost recoveries) or expense (office payments/cost liabilities) accounts from your firm’s chart of accounts.
Disbursement activity codes
You can streamline the use of hard and soft costs with activity codes. You can specify in a disbursement activity code if this entry is a hard or soft cost.