Are you planning to create a start-up or simply looking for a way to impress your clients with a professional-looking and well-made invoice? Regardless, we’ve got your back!
Drafting your first invoice can be a daunting task, especially if you want to make the impression that you’re a well-established company. After all, since an invoice is one of the last things your clients would see, you should make that impression a lasting one.
What is an invoice, anyway? Why is it so important?
What Is an Invoice?
An invoice is a detailed commercial document containing the itemized list of the products to be paid for by the buyer. It is generally considered proof of payment and is, therefore, part of your accounts receivable.
Generally, an invoice contains the buyer’s and the seller’s contact information, mailing address, timestamps, and the description of services rendered or products sold. Other business contact methods should also be listed.
Should the product be paid through credit, the invoice may also contain the terms of the deal.
Invoices are sent to buyers before payment so that they may certify if the list is correct and complete. They also establish a paper trail for proper bookkeeping and easier auditing. You wouldn’t want the IRS to find your records lacking, right?
11 Different Elements of an Invoice
Now that you know what invoices are and what businesses use them for, let’s take a look at the specific elements you’ll find in an invoice.
1. A Header That Clearly Contains the Word “Invoice”
Time is money, so you’ll want your client to know what you’re handing them without much scrutiny on their part. This is also the same case for you. After your business grows, you will have more papers in your office, and you’ll thank us for suggesting you mark your invoices clearly.
You will also do yourself a great favor by choosing an easily remembered logo on your header. That’s because your customers can be more aesthetically inclined than you think, which is what visual content is all about.
2. A Unique Invoice Number
Make your transactions one of a kind. Invoice numbers should be uniquely attributed to specific orders. You could use a combination of significant letters and numbers or base it on the time of purchase. This way, you can make it more organized and easily distinguishable from your other invoices.
3. Your Company’s Information
Your clients should know who you are. Hence, this element should include your company’s legal name, legal registration details, address, and telephone or mobile numbers. Including your fax number also helps. Doing so ensures faster payments and more seamless transactions in the future or when your client has some inquiries.
4. The Time and Date of the Transaction
The time and date of the actual transaction should be reflected clearly and concisely on the invoice. That’s because it could dictate the duration of the credit payments and warranty if applicable.
Moreover, putting the date also helps you catalog your product sold or service rendered. You’ll find it especially helpful when checking if something is wrong with the shipping time, due dates, and other time-sensitive matters.
5. Your Buyer’s Information
You should also include the buyer’s name, contact information, and shipping address in the invoice for better documentation. Doing this also makes it easier to check with the client if the records you have are correct.
6. List of the Products and Services Sold
This part should be easily read and understood. You should include what items or services are to be paid for, the quantities per unit, and the price of each unit sold.
7. Transportation Fees and Tax Rates
For transparency, you should dedicate a space for a clear tabulation of the shipping fees and tax rates of each item. It’s better if you put this just above the Total Amount Due and after the list of your products or services sold.
8. Total Amount Due
After all the necessary calculations are added to the invoice, you should add them to form the Total Amount Due. It should be written clearly, perhaps in bold characters, for emphasis. The currency should also be clearly indicated, especially when dealing with international clients. Plus, you should include the mode of payment agreed upon.
9. The Terms and Conditions of the Transaction
The invoice should also clearly indicate the terms and conditions of your transactions. You could emphasize the important dates to note, penalties for non-payment or late payments, and perhaps incentives for early or consistent payments (if paying in installments).
Invoices typically make use of terms such as “Net 30” or “Net 15” to denote the payment dues. Net 30 means that payments should be made 30 days after receipt of invoice, and Net 15 after 15 days.
10. The Payment Due Date
The due date should be explicitly written in the invoice to ensure that payments are made on time. This depends on the invoice format you use (Net 30, Net 15, Net 10, or others).
11. A Personalized Message for the buyer
To show that you care about your buyers and their interests, you could add a small thank you note or other nice words to your invoice. This could help customers better remember you for future transactions.
What Are the Different Types of Invoices?
There are different forms of invoices. Here are the most common ones:
Sales Invoice
Also known as a sales receipt, a sales invoice is perhaps the most common type of invoice and what may pop in your mind when you hear the word. It is also the reason it’s considered a standard invoice. These common invoices can be in the form of digital invoices or paper invoices.
The seller typically sends sales invoices to the buyer to request payment for the goods ordered. Sales invoices may also serve as legal records (though not legally binding) of the transaction once the invoice payment has been successfully made.
Credit Notes
A credit note, otherwise called a credit memo, is used in transactions where the seller is the one who owes the buyer the money, in contrast to regular business transactions. This is why a credit invoice is also sometimes called a “negative invoice.” It cannot be considered as one of your accounts receivable.
A credit invoice recognizes that a certain amount is to be offset for the buyer’s next transaction with the seller.
Credit notes are usually given when the product received by the buyer has some damages or when there is an error from a previous invoice. The same is true when you simply want to give your buyer a discount on their next purchase.
Proforma Invoices
A Proforma invoice, which roughly translates to “invoice for form only,” is an estimation of the costs to be provided by the seller on a specific date. Contrary to your regular invoice, this type of invoice is not yet recorded or charged to the buyer. It is also used to help your client choose whether or not to place a specific order.
Timesheet Invoices
Timesheet invoices are used when the company charges for their services by the hour. This particular type of invoice helps lessen errors in data entry and promotes smoother payroll processing.
Recurring Invoices
Recurring invoices are typically just regular invoices sent on a regular basis for repeatedly-occurring products or services. Remember the billing form you saw when registering for a new Netflix or Spotify account? Yeah, it’s like one of those.
Retainer Invoice
Retainer invoices are sent to clients to collect advanced payments for tasks yet to be done. Commonly seen in legal firms, this assures the clients they have the firm reserved for their cases or any other services required during an agreed-upon duration.
As you can imagine, this invoice type is also useful as a company’s protection to avoid cancellations in logistics-related matters.
Commercial Invoice
Used specifically for international transactions, commercial invoices are necessary for customs clearance when shipping products from one country to another. You can also use it to calculate taxes and tariffs.
Overdue Invoice
Overdue invoices are something any business owner wishes they wouldn’t have to send. This typically means that the buying party failed to pay for the goods or service requested during a stipulated date from a previous invoice.
Consolidated Invoice
Consolidated invoices are just a bunch of other types of invoices compiled to form one invoice, making your and your customers’ lives easier.
Interim Invoice
Interim invoices are made for partial payments of a larger project. If your client finds the total amount of a project too much for a one-time payment, you could use this type of invoice, at least so that you could fund the initial steps.
Final Invoice
Calculated by deducting the amounts of both the retaining invoice and interim invoices from the amount owed, this type of invoice serves as the end expense for a particular project. It should contain all other information present in a regular invoice with the addition of the deductions.
How To Do An Invoice
Now that you know what’s an invoice, the necessary elements in an invoice, and the type of invoice to write in particular situations, let’s look at how to do an invoice.
Step 1: Choose your preferred method of writing an invoice.
You can go about writing an invoice in two ways: using an online template or buying an already-printed one. Here’s where they differ:
Using an Online Template
There are lots of templates you can find online to make your invoice-writing easier. You can also make use of a plethora of digital tools available. That said, using online invoicing software or accounting software is ideal. You can even create custom invoices to further your branding.
You can send an online invoice to your customer’s email or opt to send out physical copies. This method of invoicing is also mostly considered electronic invoicing, which is a great way to ensure your invoices don’t get lost amidst a client’s junk mail pile.
Using Already-Printed Invoice Templates and Writing Them by Hand
This option is the most efficient if you are already discussing terms face to face with your client in real-time. Although not necessarily the most professional-looking among the options, this method is still acceptable. Just make sure you have a physical carbon copy of the document.
Step 2: Write all the necessary details.
Now that you’ve chosen where to write your invoice, you will need to write down the elements we discussed earlier.
In summary, you’ll have to include a header that clearly contains the word “Invoice,” a unique Invoice Number, your company’s information, and the time and date of the transaction.
It should also include your buyer’s information, the itemized list of the products and services sold or rendered, and transportation fees and tax rates. Then, write the total amount due, terms and conditions of the transaction, the payment due date, and a personalized message for the buyer.
Why Are Invoices Important?
On top of understanding what’s an invoice, it would also help to know why it’s important. An invoice serves as the list of the products sold or services rendered by the seller to the buyer before the payment has been issued by the latter. Invoices can also serve as the record of transactions for accounting purposes.
1. This is your way of trying to remind your clients to pay you.
Let’s be realistic; we all want to get paid here. Invoices are your way of professionally letting customers know how much they owe, how they should pay, and when. Reminders by invoice could also make your billing cycles faster, ensuring a healthy cash flow.
2. You can keep track of your business better.
You should dedicate some time every day to look at how your business is going. A well-maintained record of transactions by your properly filed invoices will help you in this regard. You could also assess who among your clients has an outstanding balance and which ones have paid in full already.
An outstanding invoice can be issued to keep track of these accounts. Keep in mind that an outstanding invoice is a term interchangeably used with “past-voice invoice.” This could help you profile your clients and make somewhat accurate predictions of your future transactions with them.
3. It serves as additional marketing.
Anything with your company name, logo, contact number and address may serve as marketing tools to make you more well-known. That’s why you should ensure your invoice sheets look as crisp and professional as possible.
4. It helps reduce the chances of being audited.
Well-recorded books are your best friends when it comes to dealing with the IRS or other auditing bodies. Invoices can also be used to accurately calculate how much tax you’ll need to pay for tax filing purposes.
Don’t underestimate unnecessary tax expenses and penalties. It won’t just significantly impact your cash flow but can also put your future as a business owner at risk.
5. It is legal evidence that sales transactions were conducted.
Since invoices prove that sales have been conducted between parties, they can be used as evidence in court in case a client claims non-receipt of the product. Alternatively, you can also use invoices as legal proof in court that a client has yet to pay you.
FAQs
1. Is an invoice a bill or receipt?
An invoice is neither a bill nor a receipt. Sellers send invoices to the buyer prior to receiving the payment as a reminder and tabulation of the items or services to be paid for. The invoice is then recorded as a bill by the buyer upon receipt of the invoice. On the other hand, the seller issues a receipt upon receiving the appropriate payment from clients.
2. Does an invoice mean you have paid?
No. Receiving an invoice means that payment is yet to be received by the seller. If you have already paid upon or before receiving the invoice, you should immediately inform the seller to avoid miscommunication and possible penalties.
3. Is an invoice a legal document?
No, invoices aren’t legal documents on their own. Although it is important in processing trades and transactions, one party cannot be held legally bound to another via an invoice alone.
This is where legally binding contracts come through as a better alternative if you are looking for a more secure way of making your clients pay. Even so, we still cannot deny the fact that it can prevent fraudulent lawsuits.
4. When should you issue an invoice?
You should issue an invoice when you want to notify a client that payment is required, which is after the completion of their order. For products, invoices are typically sent immediately after shipping.
Service-providing businesses should consult with their clients first before issuing the final invoice. This way, all necessary adjustments would have already been made and therefore reflected in the invoice.
5. Can an invoice be issued before payment?
Sending an invoice before a project is finished is not unheard of. In fact, interim invoices are used specifically for this. To assess whether or not you should issue an invoice before payment, consider if the job requires a certain amount of deposit to be finished.
Initial deposits may be used to produce starting materials, such as cement, paint, or nails. You should also consider the time it will take to finish the project. In rare and unfortunate scenarios, you could ask a client to pay an initial deposit if you have prior experience with them not paying on time. This comes as protection for your business.
6. Can the final invoice be just the same Proforma invoice?
No, it can’t.
What’s an Invoice?
Invoicing is important and healthy for your business. While your advertisements attract customers to you initially, it is the quality of your products and services going forward that makes them stay. And if you’re lucky, you’ll have repeat transactions with them.
Your invoice’s accuracy, design, and overall impression serve as your business’ closing statement with your client. We’ve all heard that first impression last, but it is the last impression that will likely be remembered.
Now that you know what is an invoice and other particulars that come with it, we hope to one day be first-hand witnesses of how your business becomes successful. Good luck!
