TABLE OF CONTENTS
- What Is an Invoice?
- Differences Between Invoices, Bills, and Receipts
- The 6 Most Common Types of Invoices
- Information to Include on Invoices
- How to Create an Invoice
- Invoice Example
- Invoicing Best Practices
- 5 Important Reasons for Issuing Invoices
- Benefits of Online Invoicing vs. Paper Invoicing
- How to Automate Invoicing
- Final Thoughts on Invoicing
Perhaps not the most exciting document, invoices are absolutely essential for anyone starting a business. An invoice is a document issued by a business that records a transaction between a customer and said business. Not only does an invoice help you collect your hard-earned money—which is actually very exciting—but it also helps you create a trusting relationship with your customers by providing clear details about the purchase. Follow along to learn about invoicing as we cover how to create an invoice, the best invoicing practices, and the benefits of digital invoices!
What Is an Invoice?
An invoice is a document that a business sends to its customer to request payment for goods or services. It typically includes the customer’s name and contact information, a description of the goods or services provided, the date of service, the account number, the amount due, and additional relevant information. Once the customer receives the invoice, they can make a payment via their preferred method. Sending invoices helps keep accurate records and ensures businesses receive payments in a timely manner.
Differences Between Invoices, Bills, and Receipts
An invoice is a document that requests payment for goods or services from a customer or client. Invoices break down the scope of work, prices of goods and services, and date of payments. Invoices also include payment terms, such as net 30, net 60, or pay upon receipt.
Bills are just like invoices in that they include payment details. However, a bill is more like a reminder that a payment is due. The major difference is that invoices include set payment terms. A bill, on the other hand, implies the stated amount is due now.
A receipt is a record of payment issued just for documentation purchases. A receipt breaks down a purchase for a particular day. Typically, buyers use a receipt to return items they previously purchased or to prove ownership of items.
The 6 Most Common Types of Invoices
In practice, the term “invoice” is a bit of an umbrella term covering several different types of invoice-style documents. The type of invoice you use depends on your business operations. To give you a better idea, here are some of the most common invoices you may deal with in your business.
1. Debit invoices
A great tool for freelancers and small businesses, a debit invoice adds necessary increases to an existing bill. Instead of reissuing the entire invoice, you create a secondary notice with the increased amount. (For example, you bill an estimate of time for a project at six hours however, the project took eight hours to complete.) A debit invoice would help you correct the overage. This could also happen if the scope of work changes after the initial agreement has been set.
2. Credit invoices
A credit invoice is a document to issue a refund or notify your customer of an overpayment. Essentially, a credit invoice communicates you’re returning funds to the document recipient. Most commonly, you’ll issue a credit invoice when a customer returns an item. Almost all businesses can benefit from using credit invoices to keep a record of returns and refunds.
3. Pro forma invoices
A pro forma invoice generates when the sale is approved but the product has not been delivered or the service has not been performed. This type of invoice is an agreement on a price for a product or service expected in the future. You can think of a pro forma invoice as a quote a company will honor in the future.
4. Recurring invoices
A recurring invoice is usually produced for customers with subscriptions or memberships. Mainly for record-keeping purposes, a recurring invoice helps the customer recognize the charge and attribute it to your business. These invoices can be set automatically on a weekly or monthly basis in accordance with the customer’s pay schedule.
5. Interim invoices
Think of interim invoices as progressive invoices. This invoice means you’re letting a customer pay for goods or services in installments instead of a large lump sum upfront. For example, renovation companies bill a client after each room is complete instead of billing all at once after the project’s completion. When using interim invoices, a final invoice should be sent at the end of a project, detailing the completed work.
6. Past-due invoices
Past-due invoices are pretty self-explanatory. If a customer does not pay for your services within the agreed-upon billing window, you may send an invoice letting them know their payment is late. On this invoice, you should include any applicable late charges stated in your original agreement.
Information to Include on Invoices
With a clear, direct, and easy-to-pay invoice, you can assure your business’s cash flow remains steady and operations carry on interrupted. Creating an enforceable invoice ensures you receive payment and protects you in the event of a loss.
Business contact information
Include your full company legal name, DBA, phone number, email, and address. It’s important to make it clear who you are and how customers should contact you with questions. This is a crucial step in making sure your invoice is simple, transparent, and easy to pay.
Customer contact information
The invoice should also have all of your customer’s information. This can include legal name, address, phone number, or email address. Having your customer’s information on the invoice helps you to track orders by name, as well as show that the services or goods were ordered by them.
Date of invoice
The date of the invoice can be the date you issued, sent, or presented the invoice to the customer. The invoice date starts the clock on any applicable payment terms. It’s important to let the customer know the date of the invoice to ensure they pay within the acceptable time period.
Every invoice must have its own unique number specifically tied to one sale or service. This will allow you to find a sale, which may especially come in handy while servicing recurring customers who may have a question about an old invoice.
Date services were rendered
Along with the date the invoice was received, you need to add the date the services were rendered. Being detailed on an invoice not only helps with record-keeping but also helps in the event of questions about what services you performed and when.
Purchase order number
Issuing purchase orders prior to a sale can prove intent to purchase and can be tied to the original invoice. This can resolve conflict, confusion, and questions quickly.
Product description and price
Make sure it’s clear on your invoice exactly what products or services you have agreed to, and the prices for each. This sets proper customer expectations and will keep your business delivering exactly what it promised.
Cost per unit
If a customer buys multiple units, include the cost per unit. Do not just invoice the lump sum total. For transparency purposes, it’s important to break down and detail how much each unit costs. This is especially useful in the event of a return.
Important Tip: Separate line for each product or service
In addition to providing a price and description for each product or service, it’s important to display each product or service separately. In other words, lay out each service or product line by line with the exact cost for each.
Depending on the city or state, sales taxes can range drastically. Make sure your local and/or state tax rate is clearly visible and communicate what part of the invoice is taxable.
Total amount owed
Present the total amount owed at the bottom of your invoice. This should include all goods and services agreed upon, taxes, shipping, and additional fees.
Personalized thank you note
While it isn’t exactly necessary, you can personalize an invoice to say, “Thank you for your purchase!” For small businesses or freelancers, a customized note of gratitude can go a long way. It’s an easy way to show customer appreciation.
The payment terms must be clearly displayed on the invoice. This includes if multiple payment installments are allowed, the invoice due date, if the customer can put the invoice on credit, penalties and late fees, and so on.
How to Create an Invoice
If want to create an invoice, you can do so in several different ways.
- Use a template: Microsft Word, Google Docs, and Excel provide invoice templates into which you can plug the necessary information.
- Input business information: This includes the client’s name and address, contact information, date, invoice number, and all relevant information.
- Add line items: The product, price, net amount, tax, and date of service are all necessary details for which your customer may look.
- Clarify payment terms: Stating your payment terms on your invoice helps mitigate late or missed payments.
- Automate it: Re-entering information for the same client on a subscription-based service is time-consuming. Automated invoices will autofill client information and send it out on specific dates.
Now, let’s put it all together with an example! Below you’ll find an example invoice you can use to see where each of these bits of information would go on a standard invoice:
Invoicing Best Practices
Catering to the needs of your customers improves the relationship and gives your customers a sense of trust. Implementing the following practice in your invoices won’t just help your business receive its payments, but will also facilitate long-lasting customer commitment.
Invoice through a dedicated, secure, cloud-based portal
Only invoice through a secure, cloud-based portal. This allows your customers to see their invoices in real-time and make payments securely. Your customers can check when an invoice is due and receive alerts as the due date approaches.
Record invoices & supporting documents
Online invoicing allows you to keep receipts, pictures, PDFs, and other related records in one place. With online invoicing, if a customer ever has a question about an old invoice, you do not have to go digging around for it.
Offer customers options for receiving & paying invoices
Providing multiple payment options makes it convenient for clients to pay. Additionally, you can offer a PDF document to clients who prefer to print out hard copies and a digital format for those who prefer online methods.
5 Important Reasons for Issuing Invoices
Beyond getting paid, there are many reasons for issuing invoices. In this section, we detail the most important reasons you should issue invoices for your customers.
1. Legal protection
An invoice is not legal proof of an agreement, but it can help resolve disputes in court. In the event of collections or a lawsuit, having well-documented invoices can boost your case. Invoices create a paper trail of your openly laying out acceptable forms of payment, the expected payment timeline, and any late fees.
2. Track payments
Invoices are a useful tool for tracking accounts receivable. With invoicing software, you can automatically generate reports, review cash flow, and track any outstanding amounts. Setting up recurring invoices can be used as a friendly reminder to clients that a payment is due soon.
3. Business analytics
Invoices keep track of the time, money, and resources you need for your business. With solid data collected from invoices, you can see where to cut costs and analyze how long a project takes.
4. Maintaining financial records
Maintain useful financial records with invoices so you can see when a bill was paid, who paid it, and what the service was. You never know when these documents will come in handy during tax season or when a financial analysis must be completed.
5. Tax filings
If your business is audited, having a well-maintained sales record or invoicing system will work in your favor. Invoices record all incoming revenue and help track expenses. It makes it easier for companies to be transparent about where their money is and where it came from.
Benefits of Online Invoicing vs. Paper Invoicing
There are many benefits to creating, hosting, and receiving payments for your invoices online. In this section, we take a look at how invoicing online is not only more convenient and cost-effective for the business but also more secure for the customer.
Create custom invoices
When you hand-write invoices, you’re stuck with the template from a store-bought invoice book pad. With an online invoice, you can customize invoices by adding your brand logo and design. You can customize online invoices further by adding line items and automating your local tax rate.
Faster payment processing
Moving to an online system means payments move faster. If you’re waiting on a mailed check, it can take a few days to arrive and a few more for it to deposit into your account. However, online invoices allow you to accept credit cards and receive funds within a few business days. Almost everything is done online these days, so meeting your customers with a payment method that works with their lifestyle helps to secure faster payments.
Ease of tracking and managing
There is no easy way to shuffle through a stack of paper invoices. With an online invoice tracking system, you can generate reports and easily locate a specific invoice. A digital system also allows you to easily send payment reminders, notifications, and statements.
Due to advances in payment technology, online payments are more secure than ever before. It’s hard to say the same about accepting cash or checks because they can be misplaced. Having a secure online payment funneled directly into your business bank account is a safe and reliable option.
Another benefit to online invoices is that you can automate a lot of otherwise manual processes. You can automatically generate invoices each month, email invoices to recipients, and record payments.
With online invoicing, you’ll cut out the price of paper, ink, and postage—saving on office costs. As small business owners know, any extra bit of savings is helpful.
How to Automate Invoicing
PaymentCloud proudly offers merchants the ability to automate invoices. With the assistance of our customer support team, you will be guided through setting up automatic invoices. A representative can assist with:
- Adding your business information and logo
- Setting up the invoice schedule for each client
- Putting the amount on an invoice
- Providing you with the API credentials to integrate with your payroll software
Final Thoughts on Invoicing
Online invoices are the wave of the future and with PaymentCloud, you can easily automate your invoicing process. By providing multiple payment options for customers, recording all relevant documentation, and sending out reminders, you’ll be able to streamline your invoicing process and process credit card payments in a timely manner. It’s almost like making money in your sleep!