Writing an invoice

What is Invoicing?

Invoicing refers to sending an invoice or record of a transaction between a buyer and a seller. This invoice is a commercial document which records an itemized list of products or services exchanged for money, typically between a business and a customer.

As a business owner or self-employed individual, issuing invoices to your customers is just one of the many aspects of running a successful business. Without knowing how to invoice your clients, your business won’t have a way to collect the payments owed to you for goods or services rendered. So here are the things you need to know when invoicing.

These topics will help you understand more about invoicing and it’s role in small business management:  

What is an Invoice Used For?

An invoice is used as a source document or proof of a transaction taking place between two parties. It spells out the terms of the deal, including what is being bought, how the payment should be made, who is receiving the product or service, and the transaction date and when it must be paid by.

What is invoicing in accounting?

A sales invoice is an essential part of the accounting aspect of a business as well, as it shows proof of sales that must be added to the business’s bookkeeping records.

Issuing an invoice to a customer means tracking a sale of a product for accounting and tax purposes, as well as inventory control. Suppose your business sells high-end dinnerware. If a customer comes to your company and purchases a set of dishes, teacups, and saucers, you will need to provide them with an invoice for all the items sold. This invoice will tell the customer what they bought and how much they owe you.

This transaction record will then be used to update your business’s accounts, such as the sales ledger and your inventory list, making the invoice an essential part of the accounting process. Your business must record all sales to accurately calculate and file your taxes with the government for the calendar year.

Learn how to create an invoice for your small business.

Are invoices receipts?

An invoice is a document requesting payment, given to a buyer from the seller when a transaction occurs. On the other hand, a receipt is proof of payment for a sale. Therefore, an invoice is given to a customer, and once they have paid the amount on the invoice, the customer will receive a receipt as evidence that they paid the amount in full.

What are the Different Types of Invoices?

Invoicing covers a wide range of source documents that record various types of transactions between two parties.

The different types of invoices a business might issue include:

  • Standard Invoice: Most common form of invoice that records a sale or transaction between seller and buyer, or business and customer.
  • Pro Forma Invoice: An estimated price of a transaction before it has been agreed upon by the buyer and seller.
  • Commercial Invoice: Used as an international invoice for business conducted between countries, taking into account customs and duties on a product shipment.
  • Credit Invoice: Issued by the seller to the buyer for a refund in price or a credit for a previous invoice mistake. A credit invoice should always portray a negative number.
  • Debit Invoice: Issued by a business to a customer when the original invoice amount must be increased to portray actual amount owed. This happens if a company works more hours on a project than originally estimated and must account for the increased billable hours.
  • Mixed Invoice: An invoice using credit and debits to an account between a business and customer, showing either a positive or negative balance depending on the account’s changes.
  • Timesheet Invoice: Issued from one party to another based on billable hours worked and their rate of pay, typically used by hourly workers.
  • Interim Invoice: Used for ongoing projects when a business needs to bill a customer intermittently when specific goals have been reached but the final project is not yet completed. These invoices help a business with their cash flow during extensive undertakings.
  • Recurring Invoice: Used for monthly sales between a business and customer where the amount does not change, typically used for subscriptions and monthly services.
  • Past Due Invoice: An invoice issued when the amount owed by a customer has not been paid. Businesses should always send out past due invoices when a customer has not settled their bill on the date agreed upon.

Components of an invoice:

Every invoice your small business creates will need to have specific information attached to it. Before you send out an invoice, you will want to ensure you have all the relevant product or service information including:

  • Your business name and contact information
  • The customer’s name and contact information
  • An invoice number for internal and external referencing
  • Goods or services sold and the quantity
  • The total amount owed
  • When the amount is due by, this is a due date, or net date
  • Sales tax including HST, GST, or PST
  • Payment terms including any incentives for early payments or penalties for late payments

To see an example of a business invoice, check out QuickBooks invoice templates for any industry including construction, freelance, daycare, and more.

How to Send an Invoice

Once your source document is complete, and you date the invoice accordingly, you’ll have to decide how to send invoices to your customers. Many businesses used to provide their invoices to clients in person or through the mail. But now, the optimal method of sending out these documents is through email or other online services.

Electronic invoicing is beneficial to both your business, and the customer. It offers a direct communication line, with a quick turn around on payment for increased cash flow. With some invoicing softwares, you can even pay through a link directly in the invoice, making it an easy and straightforward process for your customers.

Invoicing Software That Works

With QuickBooks accounting software, your business can take advantage of their unique invoicing features to create branded invoices, streamline the payment process for your clients, and automatically input figures and amounts into your bookkeeping records.

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