What is an Invoice?

An invoice is a financial document that requests payment from a buyer for goods or services you’ve provided. It lists details like the quantity, total amount owed, and the payment due date.

Invoices also serve as key tax documents, helping you keep accurate records and stay compliant with local tax laws. They formally show your revenue and any applicable taxes.

Since invoices are your main way to get paid on time, it’s essential to get them right. Below, we’ll explain what an invoice payment is and how to use invoices to keep your cash flow steady.

What is the purpose of an invoice?

The main function of an invoice is formally requesting payment once you’ve provided goods or services. But this isn’t their only use case.

Here are six additional reasons you should send and record invoices properly: 

Promoting transparency

Invoices act as a gesture of good faith toward your buyer. They lay out all the information on the table so the payee knows exactly what’s expected of them, with no hidden surprises. As well as squashing disputes, this transparency also helps to strengthen buyer-seller relationships. 

Prompting faster payments

Invoices contain a legally binding deadline by which the seller needs to pay. They also contain late payment fees and policies. All of this encourages the seller to send their payment promptly, which helps to create predictable cash flow. 

Recording transactions

An invoice is a detailed record of a financial transaction, which means businesses can use them to track money in and money out. They can also help companies when following up on missed and overdue payments. 

Protecting your business

Invoices are legally binding. That means they can be used to resolve disputes or as evidence in legal issues. This is another reason why recording your invoices is so important. 

Preparing for tax time

Many countries require that businesses maintain invoices for tax purposes. They act as proof of income and expenses, and help organisations calculate the exact amount of tax they need to pay. 

With QuickBooks Online, you can send professional invoices, track progress so you know whether you’ve been paid, and then automatically store every record in the platform. This keeps your bookkeeping tidy, and gets you ready for tax season without having to manually track every payment. 

Key elements of an invoice

Invoicing rules and best practices vary from country to country, especially surrounding tax.

In Australia, businesses registered for Goods and Services Tax (GST) need to issue tax invoices for sales over $82.50. In the UK and the EU, businesses need to calculate and charge VAT instead. 

While it’s always worth checking the invoicing requirements for your region, there are some non-negotiable elements that almost all invoices should contain: 

• Buyer’s information: The client’s contact information should be included to ensure the document is legal and clearly addressed to the recipient.
• Business details: Your company name and address, as well as contact details, so your seller can get in touch if needed.
• The word ‘invoice’: Clearly label invoices with the word ‘invoice’ to ensure the document is easy to identify.
• Invoice number: The invoice number serves as a unique identifier that you can use to categorise and track every invoice.
• Date of invoice: Date your invoice to make it easy to categorise. Also, if needed, specify the date you provided the goods or service.
• Goods/services provided: Provide an itemised breakdown of the goods offered or services delivered.
• Quantity and cost: Detail the quantity of goods or services provided, and the itemised cost of each unit.
• Tax rates: If applicable, an invoice should also contain the taxable amount for the goods or services, as specified by your local tax regulations.
• Total amount owed: The unit costs should be calculated alongside relevant taxes to determine the total amount owed in your specific currency.
• Payment methods: You should also include the different ways your buyer can pay. Try to include multiple, as this can prompt fast payment.
• Late payment terms: Clearly state when you expect your buyer to pay by, and your policy if they don’t.
• Branding: You may like to customize your invoice with your logo or brand colours to make it look more professional.
• A thank you note: Though not essential, companies will often include a personalised thank you note to show their appreciation to the customer. 

Need some extra help to create accurate invoices for your region? QuickBooks helps you generate and format these elements with standardised templates, making your invoices more accurate while saving time. 

How to create an invoice using QuickBooks Online

QuickBooks Online makes the process of creating an accurate, professional invoice faster and easier. 

Getting started is simple. From your dashboard, select + New and then Invoice to create a new template instantly. QuickBooks will automatically add your business contact details. If you’ve already added customers to QuickBooks, just choose one from the dropdown.

You can add or remove fields to suit your needs—like shipping info, invoice dates, terms and conditions, or due dates. Need something specific? Create custom fields. You can even add your logo and brand colours to make the invoice your own.

Once you’re happy, fill in the details by clicking each field. Quickly add the products or services you’ve provided, then use Payment options to select the payment methods you want to offer.

QuickBooks automatically calculates sales tax and shipping fees for you—helping you avoid common mistakes while saving time on manual data entry.

Types of invoices and when to use them

We’ve talked about the basic invoice format, but did you know there are actually various types of invoice for different situations? Let’s take a look:

Sales invoice

This is the type you’ll be most familiar with. When you send an invoice to a customer for a product you’ve provided them, that’s a sales invoice. It makes sure you get paid the full amount you’re owed on time. 

Proforma invoice

A proforma invoice is an estimate of how much your services will likely cost. It’s a good faith agreement rather than a legally binding document, and helps the customer budget for the final sales invoice. 

Interim invoice

Interim invoices ‘fill the gap’ when you need progress payments on a big piece of work. For a year-long project, for instance, you may send an interim invoice after each quarter, or following the completion of a major milestone. 

Tax invoice

Sales invoices which include VAT or GST may be known as tax invoices. These invoices must be sent by businesses that are registered for applicable taxes in their region. 

Commercial invoice

This invoice is specifically for businesses that sell goods or services internationally. It usually includes additional information such as customs duties for cross-border sales. 

Credit notes

A credit note is issued to a buyer if the goods are returned for any reason. It’s also a handy way to rectify errors in case of invoice mistakes such as billing the wrong cost. 

Recurring invoice

A recurring invoice is handy when you want to charge a customer the same amount on a recurring basis, such as a subscription fee or rent. This saves you the hassle of needing to create a fresh sales invoice every time. 

Using QuickBooks, you can schedule your invoices to send periodically on a recurring basis (weekly or monthly) or on specific dates. QuickBooks will handle the invoicing automatically and keep you in the loop with real-time alerts. 

Common mistakes to avoid when creating an invoice

Invoicing mistakes are common, especially when you’re doing everything by hand and pressed for time. Here are six mistakes that happen frequently: 

• Missing details: Incorrect details can lead to payment delays in the best case and noncompliance in the worst, particularly if you miss out on important information related to tax. 
• Forgetting to keep records: Maintaining invoice records for tax purposes is essential in most countries. In many cases, you’ll need to make sure your invoices are categorised and easy to access for audit trails. 
• Not setting clear payment terms: Your customer can dispute your invoice if your payment terms aren’t clear. Lay out how and by when you expect your customer to pay, so there’s no room for interpretation.
• Hidden charges: No one wants to be caught by surprise with charges. Discuss any extra fees with your customers before you add them to the invoice. 
• Using unprofessional templates: A consistent template helps you look more professional and credible, which is ideal when you’re trying to build stronger long-term customer relationships 

QuickBooks makes creating professional invoices easy.

With automated tax calculations and standardised templates, you can send consistent, accurate invoices in less time—while avoiding common mistakes.

Why understanding invoices is vital for your business

Invoicing is important for your business’ finances. However, without knowledge of how they work and how to ensure accuracy, it can be difficult to get everything right.

The good news is that invoicing is more science than art. Once you know how to eliminate manual errors and get a consistent format you can rely on, you’ll be able to get paid every time, in less time. 

Need some help with that? QuickBooks’ invoicing software will handle all of your invoice formatting and calculations automatically, so you can eliminate mistakes and save time. Try a free 30-day trial to get started.