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Invoice Guide: Definition, examples, and what to include

Invoices stand the test of time. Way back before indoor plumbing, paper, or even the alphabet was invented, humans were sending each other invoices to keep track of their accounts.

These ancient cuneiform tablets don’t bear much resemblance to the invoices we have today, with logos and account numbers, but the same information is conveyed.

In this post, we’ll explore the purpose of invoices for business and provide an example of a standard invoice. You can also take a look at our invoice generator, which will help you set up invoices for your small business.

What is an Invoice?

An invoice is a document used to itemise and record a transaction between a Supplier and a buyer. A simple invoice definition is that it’s a commercial document issued by a seller telling the customer what they purchased and what they need to pay.

Typically, a business sends an invoice to a client after they deliver the product or service. The invoice tells the buyer how much they owe the seller and sets up payment terms for the transaction.

What is the purpose of an invoice?

Businesses can use invoices to track what customers owe in total as a way to monitor cash flow.

Invoices can help companies receive payment in full and on time. And they serve as records of sale and provide a way to track:

  • The sale date of a good or service.
  • The amount that the business is being charged for the product or service
  • Any outstanding balances the client owes.

Additionally, invoices can help you protect your company in the event of an audit, as they help to create a paper trail. Detailed invoices will show the taxation department in your country exactly where your money came from should they question your tax returns.

When selling products or services, enter the invoice amount owed as accounts payable on the buyer’s end. For a business, the invoice is in accounts receivable.

Invoices, Bills, and Receipts

What’s the difference between an invoice and a receipt?

While similar information is included in sales receipts and invoices, they are not the same. An invoice is issued to collect payments from customers, and a sales receipt documents proof of payment that a customer has made to a seller. Receipts are used as documentation to confirm that a customer has received the goods or services they paid for, and as a record that the business has been paid.

What’s the difference between an invoice and a bill?

Both invoices and bills are records of a sale that indicate how much a customer owes a seller, and both are issued before a customer has made payment for the transaction. However, there are some differences between each term.

  • An invoice documents a sales transaction where the seller collects payment for products or services at a later date. A supplier may use the term “invoice” or “sales invoice” to describe a customer payment request.
  • A bill refers to a document of sale wherein customers pay immediately. Customers may also use the term “bill” to describe a request for payment due to their Supplier.

What does an invoice include?

Invoices aren’t necessarily standardised, and your country may have its own local requirements for invoice submissions. Invoices can vary by supplier or contractor, and you must double-check your local government’s rules in order to properly submit them. However, all invoices should include the following five components:

  1. An invoice number
  2. A date
  3. Business contact information
  4. Descriptions of goods and services
  5. Payment terms
Invoice checklist

1. Invoice number

An invoice number should be assigned to each invoice you issue. This reference number establishes a paper trail of information for you and your customers’ accounting records. Assign invoice numbers sequentially so that the number on each new invoice is higher than the last. Using electronic invoicing makes this process simple. 

Invoices aren’t necessarily due immediately when customers receive them. You may choose to set invoice payment terms of up to three months to give your customers the flexibility to manage their cash.

2. Invoice Date

The invoice date indicates the time and date the Supplier officially records the transaction and bills the client. The invoice date is a crucial piece of information, as it dictates the payment due date and credit duration. Generally, the due date is 30 days following the invoice date. But this can vary based on a company’s needs and the agreement with the client or buyer.

3. Business contact information

Within an invoice, you must provide your business contact information, including name, address, phone number, and email address, along with your client or buyer’s information.

4. Descriptions of goods or services rendered

You should enter every product or service you provide as a line item on your invoices. Include the price and quantity for each line item. At the bottom of the invoice, add up all of the line items, and apply any tax charges.

Here’s a quick checklist of what to include when listing products or services provided:

  • The date you completed the service
  • A description of services that specifies what you provided at the unit level
  • How many units your customer ordered
  • The rate per unit
  • The total number of units
  • The total amount due
  • Any applicable tax

5. Payment terms

To increase the likelihood of receiving invoice payments on time, provide clear details about payment expectations. Your payment terms should specify the amount of time the buyer has to pay for the agreed-upon purchase.

Choose invoicing terms that encourage early or advance payment to maximise your cash position and the likelihood of getting paid. You may choose to collect half of the payment upfront or partial payments over time or require immediate payment upon completion.

When setting payment terms, consider how to handle late payments. You might also consider a customer’s credit history when developing payment terms, particularly for large sales.

Then you can decide how long your customer needs to settle an invoice. Net 30 days (or “N/30″) is one of the most common terms of payment. It means that a buyer must settle their account within 30 days of the invoice date.

It’s important to remember that 30 days is not equivalent to one month. If your invoice is dated March 9, clients are responsible for submitting payment on or before April 8. Businesses may also set invoice terms to Net 60 or even Net 90, depending on their preferences and needs.

There are many different invoice payment terms, so it’s important to choose the right payment terms for your business. The chart below shows some of the common payment terms you may choose.

Common invoice payment terms and definitions
Discover QuickBooks Free Invoicing Tools

Invoice example

While invoices may vary by business, all typically follow the same structure. Here is how all of the above details come together into a sample invoice:

Invoice example

How to create an invoice?

If you’re just getting started as an entrepreneur, you may be wondering whether to create these documents manually or use invoicing software. Creating invoices manually has its benefits: you can fully customise your templates, aesthetics, and process. 

But if you do create your invoices from scratch using a spreadsheet or word processing software, you may encounter administrative errors. Moreover, if you’re creating invoices manually, you’ll run into challenges tracking them—and getting paid.

Three easy ways for you to create invoices fast and efficiently

  1. Use our free blank invoice templates - Just find the one that best fits your needs and download it for free in Word, Excel, or PDF. You will be able to customise it and send it in no time.
  2. Use QuickBooks Free Invoice Generator - With our free invoice generator, you will be able to fully customise your invoice and then download it in PDF format.
  3. Try QuickBooks Invoice Software free 30-day trial - Yes, our invoicing software offers a 30-day free trial, and we are sure that after testing it you will notice the difference between manually invoicing your clients and how QuickBooks can give you back your time by basically automating all of your invoicing tasks.

Common types of invoices

Different types of invoices can be issued to customers depending on the purpose of the invoice. Here are a few of the most common types of invoices you may use during the payment process.

Proforma invoice

Proforma invoices are issued to a customer before a product or service is delivered. Businesses use proforma invoices to help customers understand the scope and cost of an upcoming project (Because of this, it is usually referred to as a draft invoice). 

Proforma invoices are sent before a formal invoice is issued to give customers an estimate of how much a product or service will cost once delivered. The terms in a proforma invoice may need to be adjusted as a project progresses, but they can be a helpful tool to ensure businesses and customers are on the same page before work begins.

Interim invoice

Interim invoices are issued when a large project is billed across multiple payments. Interim invoices are sent to customers as progress payments against a project come due. 

Interim invoices can help businesses manage cash flow by allowing them to collect payments throughout the course of the project and can help you cover the costs associated with a project as work is completed, instead of waiting until the project is done.

Recurring invoice

Recurring invoices are issued to collect recurring payments from customers. Typically, recurring invoices are issued throughout the course of an ongoing project. As an example, a marketing agency may issue recurring invoices to clients on a monthly basis to bill for services provided. If a business bills a client for the same amount on a recurring basis, it can be helpful to automate invoicing to reduce some of the work associated with creating and sending invoices.

Credit invoice

A credit invoice is issued when a business needs to provide a customer with a refund or discount. The invoice will include a negative amount to cover the cost of the amount returned to the customer. For example, if you accidentally overbilled a client for services, you can issue a credit invoice for the amount overbilled to provide documentation of the amount you’re refunding to the customer.

Debit invoice

A debit invoice is issued when a business needs to increase the amount a client owes for a service or product. For example, if you underbilled a client for services, the scope of a project increased, or you worked additional hours on a project after sending an invoice, you can issue a debit invoice to account for the difference.

Past due invoice

A past due invoice is an unpaid invoice that is past its due date. When an invoice is past due, it means your customer or client hasn’t paid you according to the agreed payment terms. Past due invoices can impact cash flow, and collecting overdue invoices can cost business owners time and energy. 

Writing clear invoices that are easy to understand may help reduce the risk of an invoice being past due. Offering a variety of payment options may also help reduce past-due invoices. For example, business owners may consider using pay-enabled invoices that allow customers to pay their bills right from the online invoice.

Commercial invoice

Commercial invoices are customs documents used when a person or business is exporting goods internationally. The information included in commercial invoices is used to calculate tariffs.

There is no standard format for commercial invoices, but some specific pieces of information are required:

  1. The name, address, and phone number of both parties involved in the transaction
  2. The goods being exported and the reason for export
  3. A description of the goods being shipped, including what the item is used for, the number of units being shipped, and the value of the units
  4. The country or territory of origin
  5. The Harmonised System code assigned to the goods being shipped
  6. The number of packages being shipped and their total weight
  7. The shipper’s dated signature

Why is it Important to Create and Send Professional Invoices?

Professional invoices help you track payments and thereby know which invoices have been paid, which are pending and which are overdue. These act as proof of sale legally binding both buyer and seller, so the more professional an invoice looks, the better

Sending an Invoice

As a small business owner, you might be sending a bunch of invoices each month to your customers. When it comes to invoicing, you are likely aware that the invoicing process is just not limited to sending invoices to your clients.

You also need to make sure that you get paid on time by your clients. Thus, to avoid any delay on the part of your customers, it is important that you clearly discuss all the payment terms with them.

Furthermore, make sure that you are clearly defining your preferred mode of payment to avoid any hassles on the part of your customers while making payments.

Receiving an Invoice

Sending invoices to your customers and receiving invoices from your suppliers periodically form part and parcel of your small business. When receiving an invoice from your supplier, it is important to focus your attention on the payment options preferred by your supplier.

Ensure that you comply with the terms set out on your supplier's invoice in much the same way you would like your customers to comply with your terms.. Some suppliers are quite firm in setting the payment guidelines. They may be inflexible when it comes to receiving payments on terms other than the ones set by them.

For instance, some suppliers may demand cash on delivery. On the other hand, there might be suppliers who offer discounts if you make early payments to them.

Now, in this case, making early payments might save you a good chunk of money over a period of time. However, you must ensure that you are not running out of cash in the near future by agreeing to such a practice.

Use Invoice templates to create your professional invoices

If you’re ready to create an invoice, QuickBooks offers many free and customisable invoice templates to help you create different types of invoices in a variety of file formats. Options include templates for small businesses, freelancer invoices, service providers, and more. Find a free invoice template that’s right for your business on our free invoice templates hub.

You can also use our free invoice generator to make and download custom invoices online.

Best practices for writing an invoice

When creating an invoice, keep these tips in mind to ensure both parties are clear on payment expectations.

1. Write clear product descriptions

If you own a service-based business, include the title of your project, as well as a description of the activities you perform. If you’re selling a range of products, include your SKU or product ID in the itemised list on your invoice.

2. Differentiate purchase orders and invoices

Invoices are sometimes confused with purchase orders, but these documents serve different purposes.

In general, sellers issue invoices, and buyers issue purchase orders (PO). A purchase order is a purchase contract between a buyer and seller.

For example, a local coffee shop wants to buy five cases of espresso from their favourite distributor. The coffee shop owner might sign a purchase order when they buy the product. The distributor will issue an invoice meaning that the customer has received the products and now is required to pay for them.

Differentiate purchase orders and invoices

3. Offer online payment options

To streamline your invoicing efforts, make the payment process easy. Provide customers with an easy way to pay your invoice to encourage on-time payments and improve their experience with your company. Using QuickBooks, you can create electronic invoices and accept payments from one location, improving the overall transaction for your team and your clients.

How can QuickBooks help with your invoices

Invoices are an essential tool that business owners can use to keep records of their sales. By crafting clear, informative invoices and following an invoicing process, you can appropriately represent yourself to the taxation department in your country in the event of an audit. And you can increase the likelihood of getting paid on time, every time.

Quickbooks is a Global class leader in accounting software for small businesses with feature-packed cloud-based Invoicing allowing you to send professional invoices fast. 

Our award-winning software saves you time so you can get on with running your business. We make smart business tools for the world’s hardest workers – you.

Unlock the power of QuickBooks for your business with a Free 30 Day Trial today.

Save time and automate your invoicing with QuickBooks

Our customers save 9 hours per week on invoicing.*

QuickBooks Online Invoicing Features

QuickBooks Online Invoicing Software allows you to create customised, professional-looking online invoice within no time that enables you to get paid faster.

Here are some of the ways in which you can make invoicing a breeze with QuickBooks Online:

Create Customised Professional Online Invoices

You can use tax invoice templates that come in-built with QuickBooks to create and send online invoices to your customers. The tax invoice templates are pre-formatted and allow you to simply fill in the required details, make changes as per your business needs, and send it to your customers for payment.

You can also create custom online invoices using in-built styling options to match your brand identity.

Track Payments Anytime, Anywhere

With QuickBooks Online Accounting Software, you can easily check which customers have made payments and which customers are yet to pay.

Furthermore, you can track your payments wherever you go, at any time, and on any device including a computer, smartphone, or tablet.

You can even see overdue invoices and send automatic reminders for unpaid invoices.

Get Time On Your Side With Automated Invoicing

With QuickBooks Online Accounting Software, you can automate your invoicing process, save time, and ensure accuracy. Further, you can schedule and send invoices to your regular customers.

Also, you can choose to send online invoices individually or in batches, thus saving more time for your core activities. Here are some of the ways in which QuickBooks allows you to automate invoicing:

Set Automatic Invoice Reminders

A reminder email is automatically sent to the customer whose due date is fast approaching.

Send Recurring Invoices

QuickBooks enables you to set up recurring invoices for customers whom you bill regularly, thus saving you more time.

No Need For Manual Calculation

There is no need for you to manually calculate the amount of tax, discounts, and shipping costs as QuickBooks does it for you.

You just need to fill in the details like per-unit price, quantity, tax rates, discount rates, etc and let QuickBooks do the rest of the work for you.

Send Invoices On The Go

QuickBooks allows you to create and send online invoices effortlessly within minutes. Further, you do not have to be bound to your office desk as you can access your QuickBooks account anytime, anywhere, and from any device.

You can even send the invoices to your customers via WhatsApp. Thus, QuickBooks gives you the power to run your business on the go

Frequently asked questions about invoices

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