Everything You Need to Know About Invoicing

August 4, 2022
Photo by FIN on Unsplash

Knowing how to invoice correctly and understanding the part that each side plays in the process is an important part of being in business. After all, invoices are official tax documentation, and you’re legally responsible for keeping copies to help decipher the amount you’ve earned and the subsequent tax you may have collected in the process.

Here’s everything you need to know about what putting an invoice together means for you, your customers, and your business.

What is an invoice?

An invoice is a document that’s issued by a seller to a buyer. It relates to transactions involving goods or services after a sale has been made. An invoice document will note the products or services provided by the seller, and an agreed-upon fee for the buyer to pay for those products or services.

What are invoices used for?

They’re primarily used for charging people for individual projects or recurring work. Generally speaking, invoices are sent as an official request for payment after a job or order has been completed.

Invoices are usually typed up and sent through the post. However, over the last few years, the majority of people have embraced email and digital documentation to improve the efficiency and speed of invoicing.

What is a good example of an effective invoice?

As an official request for payment, it’s important to avoid making mistakes when it comes to invoicing. Careless errors can result in a customer refusing to pay, or the wrong amount being charged to them.

However, due to the fact invoices are commonly used across all industries, there’s rarely a specific unified example. Fortunately, there are many free digital templates available, from an example template for a construction company to financial services invoice templates.

But regardless of whether you choose to make use of these templates, there are some things you need to include in your invoices to ensure they’re professional, informative, and clear.

What should be included in an invoice?

A good invoice needs to clearly state the buyer, the seller, and the products or services exchanged. You’ll also need to include the following information:

  • Some kind of unique reference number
  • The date of the invoice being issued
  • A clear due date for expected payment
  • The full name and invoice address of the business/person receiving the invoice
  • A breakdown of the products or services the invoice is referring to
  • The date on which these goods or services were provided/delivered
  • The specified amount that’s owed

Mark it clearly at the top of the document with the word ‘INVOICE’ and stick to these details of what you need to include on the invoice to ensure fast payment and avoid any miscommunication.

What does the term “invoice due date” mean?

We previously mentioned including an invoice due date in your invoices. This is the date when complete and full payment is due for your goods or services. When this date passes, if you still haven’t received your full payment, your invoice will be overdue.

By keeping clear dates and expectations in your invoice, you can make the payments aspect of invoicing far less problematic. You can even include the methods of payment you’re willing to accept (bank transfer, cheque, PayPal, etc). Some businesses even include specific amounts that will be charged for late fees or failure to pay.

What do you mean by an “invoice address”?

This refers to the legal address of the buyer in question, not the shipping/delivery address for the goods and services. Essentially, it’s the registered address where the buyer receives their official correspondence.

In some cases, this may be the same as the delivery or shipping address, but it’s important to double-check and not assume this is always the case.

What is the full process of an invoice?

The full process of invoicing an individual or business starts from the second you take on their business and only ends when you’ve received all of your agreed-upon fees. This can be broken down into 5 vital steps:

  1. You and another party reach an agreement to purchase goods and services within a specific timeframe for an agreed-upon amount of money.
  2. The details and parties involved are all noted on a document that expresses these dates, amounts, intentions, and products or services. The document is now an official request for payment for services rendered.
  3. You write out and create an official invoice, whether manually or electronically, and send it to your customer.
  4. When your customer receives the invoice, they are legally required to pay it in full within the previously agreed-upon time.
  5. The customer will then make the invoice payment in full. You reconcile the invoice afterwards, and the transaction has now been completed.

Understanding the payment terms of an invoice

In the United Kingdom, the rules state that a customer is required to pay you fully within 30 days of receiving your invoice for the goods or services you have provided for them. However, this is negotiable, and many companies operate under other terms of payment timeframes. These can range from 90 to 120 days.

Independent businesses and small to medium-sized enterprises may need to receive payments faster than these standard timeframes. In some cases, these companies will either offer a discount for paying up early or request that their invoices are settled within a week of receiving them.

If your business hopes for fast and efficient payment of an invoice, it’s worth noting that manual invoices take longer to be processed and paid than their automated counterparts.

The different kinds of invoicing

You may hear people or businesses refer to the following types of invoices. Here’s a quick breakdown of what they mean and what they’re used for.

A commercial invoice – this kind of invoice can be used to help tally up customs fees on imported items once a sale is official.

An interim invoice – some larger-scale projects may need several small payment invoices during the progress of the job itself.

A recurring invoice – if you’ve agreed on a set amount with a regular customer, you can simply send them a recurring invoice.

A final invoice – if you’ve sent a series of invoices over the course of a large project, a final invoice is confirmation between both parties that the job has been completed and no other invoices are forthcoming.

A tax invoice – VAT-registered businesses will need to send a tax invoice (an invoice that includes VAT).

A credit memo – if a customer returns an item or has been wrongfully charged, a credit memo will reverse the charges of a previous invoice.

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