Project Expense Tracking: Step-by-Step Guide, Tools & Tips

Project expense tracking is simply keeping a clear record of every project‑related out‑of‑pocket cost and where it belongs. It sits at the heart of project budget management, because it turns everyday spending into clear figures you can use for decisions.

Once expenses are approved, they sit in your expense log as actuals. Actuals are the amounts already spent on the project. They feed budget vs actuals reports, forecasts, and billing.

Budget vs actuals is the comparison between your project budget (the plan) and your actuals (what has happened so far). When that picture is clear, it is easier to explain where the budget went and to agree on next steps.

The next step is to get familiar with the main types of project expenses you will run into in everyday project work.

The main types of project expenses are direct, indirect, billable, and non‑billable expenses.
In the next part, each type is unpacked to make clear how they differ in everyday project work.

Direct expenses are costs that clearly belong to one project, such as a freelancer’s invoice or stock images bought for a single campaign.

Indirect expenses are shared costs that support multiple projects. Common examples include a team design tool subscription, a shared stock‑asset library, or office internet.

Billable expenses are costs that can be charged back to the client as part of a project invoice. They are directly linked to client work and form part of the project’s revenue. A typical example in professional services is a freelance designer’s invoice for a client campaign that is passed through to the client, sometimes with a markup.

Non‑billable expenses are costs the business pays for but cannot charge to any client. They support internal work or operations and do not appear on client invoices. Common examples include training budgets, internal team events, or shared software subscriptions used across multiple clients.

Expense tracking is important because it is the only way to see, in time, whether day to day spending still matches the project budget.

Think about a design agency running a fixed fee website project. The team pays a UX freelancer and buys several software add ons for the client, but these expenses only get logged once the work is nearly finished. For most of the project the budget looks healthy; once everything is finally entered, it becomes obvious that the profit margin is far lower than expected.

In practice, reliable expense tracking:

Now that the benefits are clear, the next piece is expense forecasting: estimating what will be spent and when.

Expense forecasting is the process of estimating future project spending by looking at what has already been approved and the current pace of spending.

It shows whether a project is likely to finish within the project budget, when larger cash outflows will happen, and how today’s pace changes the final project cost.

Burn rate is the average amount spent per period, usually per week or month. In forecasting, burn rate indicates how long the remaining budget is likely to last and serves as a simple check on whether the forecast is reasonable.

A simple forecast comes from answering three questions:

When team members want to test different scenarios without rebuilding spreadsheets, Productive’s Scenario Builder lets them model outcomes side by side using current data on the project budget, revenue, costs, and margins.

You track project expenses by developing estimates and establishing the budget, selecting a tracking platform, assigning roles, implementing real-time tracking, and reviewing results to improve future projects. The sections that follow walk through each step in more detail.

Start with a basic view of what you expect to spend. Group the plan into a few clear categories such as labor, software and subscriptions, travel, equipment or rentals, and subcontractors.

Why this matters: weak estimating is a common source of budget overruns. In a BCG survey of global C‑suite executives, nearly half said more than 30% of their technology development projects were over budget and late.

Solid estimates and a clear baseline reduce this risk and make gaps easier to spot. Turn those estimates into a budget by category and, if useful, by phase or month.

Project management tools like Productive enable expense tracking at the project level, allowing you to set expense budgets, monitor spending against budgeted amounts, and organize expenses using custom categories.

Choose one place where expenses are recorded and where you can see budget vs actuals. The platform should make it easy to categorize items, attach proofs, and connect with accounting.

If purchase orders are used, keep them in the same place so everything related to spending stays together. This article covers tool options in more detail later.

Spell out the core roles so everyone knows their part:

Clear ownership keeps tracking smooth and avoids bottlenecks.

Real‑time tracking matters because if expenses are logged days or weeks later, people forget what they spent, and slight delays pile up at month’s end.

Recording expenses promptly ensures data is fresh, keeps approvals moving, and gives project managers a current view of budget use, which helps with early course corrections rather than end‑of‑month firefighting.

Modern project cost management software like Productive provides real‑time visibility into budget usage, helping managers spot overspending early.

For teams, that level of visibility means they do not have to wait for month end reports to understand how projects are performing day by day.

Look at a set of KPIs to understand how the project is progressing:

These signals are the heartbeat of cost tracking and feed project cost reporting and billing. When these KPIs are reviewed regularly, patterns become clearer, and each budgeting cycle becomes easier to improve.

The best practices for tracking project expenses are setting expense budget limits and alerts, maintaining clear and transparent communication, and integrating your expense tracker with accounting systems.

The sections below walk through each of these in more detail.

Expense budget limits are specific spending limits set by project or by category.

Alerts provide an early heads-up before a limit is crossed, so teams can adjust calmly rather than make last-minute cuts. This is especially helpful for fixed-price work with strict expense caps.

In day-to-day use, this works best when the tracking software supports separate expense budgets, sends approaching limit alerts to the right people, and applies category-level limits so plan and actuals line up.

Transparent communication means clients and stakeholders see the same picture of spending and progress. When stakeholders share the exact numbers, conversations are shorter and decisions stay grounded.

A straightforward way to strengthen client communication is to use the right project management software, which lets clients view task progress and leave comments on specific deliverables.

Accounting integrations eliminate double entry, maintain tax and currency consistency, and align project actuals with the general ledger.

Productive integrates with Xero, QuickBooks, Fortnox, Sage, and more. It can sync or export expenses, map GL accounts so costs post to the right place, and carry receipt links into accounting.

The result is aligned reports, improved cost tracking across tools, and a faster month-end close with a clean audit trail.

Common challenges in tracking project expenses include missing receipt documentation, multi‑entity and intercompany expense tracking, and inadequate expense reporting.

The sections below walk through each challenge in more detail and offer practical recommendations for solving them.

Receipts matter because they prove who was paid, what for, and when. They back up client invoices and keep tax records clean.

A complete receipt shows who, what, when, amount, currency, and tax. Expenses submitted without the correct documentation create problems for client billing, tax compliance, and audit requirements.

Make sure the tools you use support uploading receipts directly to expense entries and provide an audit trail of all expense modifications.

Organizations with multiple subsidiaries often struggle to maintain a clear picture of shared costs. Expenses have to be split across entities, intercompany charges need to land in the right place, and leadership still expects a single, reliable consolidated view.

The right project management software makes this much easier. Look for tools that:

When reporting is thin, everyone ends up with a different picture of how a project is performing. Clients usually need a clear summary with the key numbers and supporting evidence attached. In contrast, project managers need real‑time views that show trends by category and by phase or month, including billable vs. non‑billable splits.

Utilize software with flexible custom report builders so each stakeholder can get the expense views they need.

In Productive, reports can be tailored in a few clicks using the same up-to-date project financial data, with flexible date ranges for different reporting periods.

This means spending less time assembling spreadsheets and more time using insights to steer project management.

The best tools for project expense tracking are all-in-one, budget management, and accounting tools. Together, they help you record expenses, keep budgets and actuals in one place, and pass clean data to finance.

In this section, each group is explained with a simple tool example so you can see where it fits into your own setup.

All-in-one tools bring project management, budgeting, time tracking, and expense tracking into a single system.

A good example is Productive, an all‑in‑one PSA built for services teams. It tackles common issues such as disconnected data, limited visibility into profitability, and inefficient project tracking.

Users get comprehensive budget management, with real-time insight into billable hours and project costs. The integrated platform reduces manual work and spreadsheet use while providing reliable financial reporting to support better decision-making.

With Productive’s accurate forecasting, teams see future project revenue, budget burn, and profit margin in real time as each project progresses. When resource scheduling or timelines change, financial metrics update instantly, giving clear visibility into project health.

Productive additionally provides:

Productive is a solid fit for teams that want to bring budgets and workflows into one place. With everything running on a single platform, it is easier to keep a clear, up-to-date picture of projects, resources, and financials.

Budget management tools focus on planning and monitoring spend across projects. They are helpful when teams already have an accounting system in place but need a more flexible way to structure project budgets, timelines, and responsibilities.

Smartsheet is a well-known example in this category. It is a work management platform with straightforward project budget management. Reviewers highlight its user-friendly interface and strong collaboration.

It includes native time tracking, resource planning and team scheduling, expense management through project budget templates, and built-in charts for visualizing results.

Accounting tools focus on the general ledger, compliance, and financial statements. They are essential for bank feeds, tax handling, and official reporting, and often provide a basic view of project income and expenses.

QuickBooks is a common choice for smaller businesses that need strong accounting. It streamlines the accounting side of project budgeting with linked bank feeds for automatic transactions, custom invoice creation, and project dashboards that track income and expenses.

Because it runs in the cloud, teams can view real-time financial data from anywhere.
To see a wider comparison and review more available tools, explore our budget management software list.

Use this quick checklist when you compare tools

Choose a tool that ticks these boxes and fits your workflow, so project cost tracking stays accurate.

Tracking project expenses matters because it shows where money goes, keeps projects on budget, and gives teams a shared view of what is really happening.

All-in-one tools make this process easier because expenses, budgets, time, and billing are all in one place. You see actuals update as work is delivered, use the same data for forecasts, and set budget alerts before projects drift over agreed limits.

If you want that kind of visibility in one platform, book a demo with Productive.