The Complete Guide to Invoices

By Madeleine Somerville

15 min read

When you’re a freelancer, consultant or entrepreneur, invoicing is a key component of running your business. If you don’t invoice, you don’t get paid—but how exactly do you go about doing that? What needs to be included in an invoice? How do you make one that looks professional? How do you accept payments, and what do you do if clients don’t pay?

This comprehensive invoice guide walks you through each step of the process, covering all the basics of invoicing, from A to Z. To illustrate some of the concepts, we’ll be using Indra as an example. She’s a freelance writer working with a handful of clients, and we’ll learn from how she creates and issues invoices.

How to Create an Invoice

Although you can definitely fly solo and create your own invoice from scratch, there are some fantastic invoice templates out there that make the process much easier. Some exist as standalone invoice generators like the QuickBooks invoice template, and others, like our QuickBooks accounting software, help you create invoices that seamlessly integrate with your bank accounts to give you a comprehensive, big-picture view of your company finances.

However you choose to create your invoice template, make sure that it’s clean, well-designed, and easy to read. Creating a professional invoice that fits with the rest of your branding goes a long way toward building a cohesive look for your business and underscoring the value of the work you’ve provided your customer. An invoice that looks good, makes sense, and clearly communicates your payment requirements makes your customers feel confident in their choice to do business with you.

Many invoice generators, including QuickBooks, will automatically prompt you to fill in the required information. There are a handful of things which need to be included in each invoice you send. Here are the essential elements of an invoice:

  • Your Information: Clearly state your name, the business name, physical address, phone number, website and email address.
  • Customer Information: State the customer’s business name, address and phone number. If necessary, use an “Attention” field to make sure the invoice gets routed to the right person.
  • Dates: Include the date issued and the due date. Reference your payment terms (net-30, net-45, etc.) as well.
  • Invoice Number: Every invoice should have a unique identifier so that can be easily tracked by you and the customer.
  • List of Goods and Services: Itemize the goods or services provided so the customer can easily see what they are paying for. For goods, include the cost on a per-item basis. For services, state the hourly or flat rate. Be sure to do this with any fees (taxes, late fees, etc.) as well.
  • Total Amount Due: This seems obvious, but make sure it’s clear exactly how much is owed.
  • Payment Instructions: Are you expecting a check? Do you accept credit cards or ACH transfers? Make it as easy as possible for the customer to pay you.

While you can create invoices in Microsoft Word or Excel, it’s better to create them online so that you can track them and accept payments.

More information:

QuickBooks free invoice template is a great place to start.
Here are eight easy ways to make an invoice online.

Do You Need a Payment Contract?

Having your clients sign a contract before working with them may seem overly formal at first, but it can actually be a good way to make sure that both of you have clear expectations before moving forward.

A contract doesn’t need to be spelled out in complicated legalese, it can be just a simple one-page sheet that explains how you charge for the work that you do, the range of services you will provide, your payment terms and whether you charge deposits or late fees. Indra, for example, might provide a contract for her clients that specifies her fees, ($0.25/word), project completion date (two-week turnaround time) and explaining that she includes one round of revisions for each piece. She clearly spells out copyright information and who retains ownership of the finished copy. She also lets her clients know that she charges a 10% late fee for each 10 days a payment is overdue.

If you do choose to write up a contract, make sure to sit down with each one of your clients and go over the sheet before beginning work to ensure that they have read and understood your services and payment structure, and then sign the contract to ensure you’re both on the same page.

Having a payment contract is a simple way to spend five minutes now in order to avoid awkward misunderstandings in the future.

More information:

Should I Require a Deposit for New Clients or Large Projects?

Many contractors or small business owners ask clients for a deposit before they begin a project. It’s not a requirement by any means, especially if you deal in short-term project or smaller invoices, but it can be a good idea if you regularly take on larger jobs or projects which require investment in a substantial amount of equipment or supplies.

A deposit of between 30-50% can protect you in the event that a client refuses to pay for the work you’ve completed, or skips out on the bill altogether. While this seems unlikely at the outset, Freelancer’s Union reports that “71% [of freelancers] cite trouble collecting payment at some point in their career.” Another “34% cited instances of not being paid at all.”

Deposits are one of several ways to protect yourself. To charge a deposit, just make sure your clients are aware that it’s your policy to do so by including the terms in your contract, then issue an invoice for the deposit amount and make it a requirement that you receive the deposit in full before beginning work.

When the job is completed, issue a second invoice with a separate line item deducting the amount of the deposit from the total owing. For example, if the total invoice was $1500, the deposit might be $500, and the final invoice would read:

Project $1,500
Deposit Paid ($500)
Amount Owed $1,000

More information:

How to Accept Invoice Payments

You can offer a few different ways for your customers to pay your invoice, some with fees attached. Make sure you explain payment options 1) in a conversation with the client, 2) in the contract and 3) on the invoice. It should be abundantly clear how they can pay you.

Let’s review the most common options so you can decide which ones are right for you:

Cash

Cash transactions have no fees but they also don’t allow you to trace payments, which can be a big problem in the business world. It’s almost impossible to securely transfer large sums of money—other than the time-honored tradition of handing over a briefcase full of hundred-dollar bills, that is—so cash is rarely used as a payment method in business transactions.

Check

Paying by check, on the other hand, does leave a solid transaction record and is a great way to transfer money for those who aren’t comfortable with online banking. If you use a standard checking account there aren’t usually transaction fees, but checks that bounce or get returned will usually have a fee levied against them.

This is where most freelancers start, but checks require that you manually update your books and your invoice tracking system. Still, checks are a popular and straightforward way to collect money you’re owed.

Automated Clearing House (ACH)

Automated Clearing House (ACH) transfer is a term used to describe when someone transfers funds electronically directly from their checking account to yours.

Using ACH transfers does involve a little more legwork for your customers because they need to look up their bank transit and account numbers to make a payment, but encouraging them to do so can pay off. QuickBooks offers zero-fee ACH payments for self-employed and small business customers, and skipping these fees can add up to huge savings in the long run.

Credit and Debit Cards

This is often the most commonly used payment method and QuickBooks customers can accept both credit and debit cards simply by paying a small fee per transaction. The fees associated with the cards vary slightly based on the payment platform, but typically range from 2.4 – 3.4%.

If you primarily accept payments in person you may also want to look into products like Square, and if your business occurs mainly online, PayPal is a great option (and typically has fees of 2.9%). Both integrate seamlessly with QuickBooks software.

BitCoin

It’s still fairly uncommon to make or accept payments using Bitcoin, but it is possible! Many people simply transfer this alternate currency electronically like they do with cash in their bank accounts. Their customer uses a Bitcoin wallet app to generate a QR code which is then scanned and added to the business’ digital wallet. If you’re a QuickBooks customer, accepting Bitcoin gets even simpler, you just need to turn on the PayByCoin feature.

More information:

How to Track Your Invoices

If you’re creating your invoices in Word or Excel, tracking them can be an onerous task. It typically involves manually creating a named file for each client and then adding numbered subfiles or separate Excel sheets for each invoice the client receives. It requires meticulous organization, can leave you open to information loss, and any error in file names means an invoice could get lost in the system.

Tracking invoices manually like this also makes it challenging to reconcile invoices and easily see what payments are still outstanding. Especially when you have payment terms of 30 days or more, seeing what money you have coming in can be crucial to structuring your business’s cash flow.

Accounting software takes a lot of the guesswork out of invoice tracking by automatically generating invoice numbers, sorting invoices by client name, showing you a clear balance sheet of sent invoices, and identifying overdue invoices. QuickBooks even offers the option of integrating a “Pay Now” button on the invoice itself, which results in clients paying up to two weeks faster.

How to Send Invoice Payment Reminders

When you invoice a client, typically you’re asking that they pay the invoice amount in 30, 45 or sometimes even 60 days. And although most clients have their own invoice tracking systems, a month is a long time and a payment due date might slip their mind.

It never hurts to issue clients a friendly reminder about an upcoming invoice due date, or a missed payment. Indra operates with net-30 invoicing terms, so she sends a reminder a week before the invoice is due and also a week after a missed payment date. She’s created automated reminder messages that are short, sweet, and to the point:

Day 15 – Polite Reminder Email

“This is a friendly reminder from Indra Collins that payment for invoice #0036, in the amount of $1,500 will be due on September 12, 2017. Prompt payment is very much appreciated—please let me know if you have any questions.”

Day 30 – Late Payment Email

“This is a friendly reminder that I have not yet received payment for Invoice #0036 in the amount of $1500, due September 12, 2017. Please let me know if you have any questions.”

Day 30+ – Pick Up the Phone

Once an invoice is late, it’s time to pick up the phone and call your client. Assume ignorance over malice, but be clear that you expect payment as soon as possible.

What Happens When Clients Don’t Pay?

Hopefully this won’t be a situation you’ll encounter too often. Ideally, your customers would pay in full and on-time, but we all know that things don’t always go according to plan.

If you’ve established a payment contract with your clients beforehand, all you need to do is follow through on the steps you laid out—whether it’s issuing reminders or levying a late fee for overdue accounts.

After you’ve sent a client a reminder and the invoice due date has come and gone, don’t be hesitant to follow through on the terms of your contract.

Indra has established a 10% late fee for each 10 days past the payment due date, so once that threshold has been reached, she issues an updated invoice including the 10% late fee as a different line item, and an updated total.

With a clear payment contract it’s quite simple to deal with your clients when they don’t pay on time—and even without a contract you can issue a polite reminder email to jog their memory—but there’s also the issue of how to deal with the financial repercussions of late payments on your end. Your monthly bills and business expenses don’t get delayed just because your payment has been, so how do you make ends meet in the meantime?

Especially when you’re just starting out, it’s common to be operating close to the bone in terms of cash flow. Eventually you’ll want to get to a point where you have a large enough bank account cushion that a missing payment won’t put you underwater financially, but until that happens, it’s a good idea to have a plan for these types of situations.

The most common way to bridge the gap between paying others and getting paid yourself is by using credit – either a business credit card or a line of credit. Both are easy to use, and if you use credit responsibly you can avoid hefty interest charges. Simply use credit instead of cash until your invoice gets paid, and then repay the debt you accrued in the meantime.

Another method is called invoice factoring. It’s a process whereby a third party buys your invoice debt, typically giving you between 70-90% of its value (so on a $1000 invoice, the invoice factoring company would give you between $700-$900). When your invoice gets paid, you receive the remaining 10-30% of the invoice, minus the company’s processing fee.

Invoicing is a breeze once you’ve mastered the basics—and with all of the incredible products out there, a well-made invoice personalized for your precise business needs is easily accessible.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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