2019-11-07 06:44:07InvoicingEnglishConfused by Invoice terminology? QuickBooks South Africa looks at what an invoice is used for and introduces common types, including sales,...https://quickbooks.intuit.com/za/resources/za_qrc/uploads/2019/11/what-is-an-invoice.pnghttps://quickbooks.intuit.com/za/resources/invoicing/what-is-an-invoice/What Is An Invoice? | Accounting FAQs | QuickBooks SA

What is an Invoice?

5 min read

For every South African small business owner and self-employed person, understanding the invoicing process is key to managing a thriving business. Yet, many new business owners lack a solid understanding of the different types of invoice. Here, we break down the basics.

In short, an invoice is a commercial document that a seller issues to a buyer. It contains information about a sale (either a completed sale or one that is still yet to happen), and details the relevant products or services involved, as well as the quantities and agreed prices.

Invoice payment terms are also usually listed on an invoice. These terms make it clear that the buyer has a certain number of days (often 30 days, or sometimes 60 days) in which to pay.

Sometimes, sellers offer a discount to buyers if invoices are paid before the due date. Timely payment helps maintain healthy business cash flows, which is why some businesses are happy to offer a small discount to customers who pay early. Such discounts may also be listed on invoices.

From the point of view of the seller, an invoice is a sales invoice. From the point of view of the buyer, an invoice is a purchase invoice. In other words, the term “invoice” only shows that money was or is owing between two parties.

 

Timing of invoices: before or after?

Invoices can be issued both before and after payment for goods or services has been made. 

In the case when a buyer has already made payment, it is wise to state in large capital letters on the invoice issued that payment has already been paid. This helps avoid any confusion or double payments.

In the case where payment has not yet been made, the invoice makes it clear that money is still outstanding.

 

What information goes on an invoice?

There are a number of key details that every invoice should include. These are: 

  • The seller’s name and address 
  • The seller’s company registration number, if applicable
  • The seller’s VAT number, if applicable
  • The customer’s name and address
  • An invoice number (no two invoices for the same client can carry the same number)
  • An itemised list of goods or services provided, and their prices
  • The total price
  • Payment due date
  • Payment details, including the seller’s bank details 

When they’re just starting out in business, some business owners choose to create and issue their own invoices. However, keeping track of invoices and payments can be tricky, particularly when business starts to pick up. With the help of an invoicing and accounting tool such as QuickBooks Online, generating invoices and keeping track of customer payments is easy and fast.

 

Different types of invoices

Beyond the standard ‘sales’ invoice, additional invoice types are used in specific business scenarios. Many contractors and companies need to use some or all of the following invoice types in their day-to-day operations.

 

Sales Invoice

This is the proper term for your everyday or ‘basic’ invoice. In accounting, sales invoices are used to provide a clear picture of your business’s monetary transactions.

 

Credit Invoice

A credit invoice details a refund given to a customer, or when you issue a credit note. Credit invoices are used to record returned goods, promotional discounts or to correct errors in previous invoices.

Credit invoices allow you to account for money moving out of your business, instead of simply deleting an invoice that has been refunded. If a buyer would like to make an additional purchase, a credit invoice can sometimes be applied, requiring payment by the buyer only for the difference in value.

 

Proforma Invoice

These are invoices used before you undertake work or provide services. Sent in advance, they typically include important information such as an item’s weight or other details, and are commonly used in international transactions to declare goods’ value for customs purposes. They also state a commitment from the seller to provide goods at a specific price. Proforma invoices help your buyers avoid unexpected costs once an exchange is complete. 

The word “pro forma” comes from Latin and means “as a matter of form” or “for the sake of form”.  

It is important to note that proforma invoices do not function like actual invoices. This means that a seller does not record a pro forma as an account receivable. Nor does the buyer record a pro forma invoice as an account payable. 

In certain cases, pro forma invoices are issued in order to request advance payments from the buyer. This is in order to allow production to start, or to act as security for goods produced.

 

Tax Invoice

South Africa operates a VAT (value-added tax) system whereby businesses (sellers) are allowed to deduct the VAT incurred on business expenses (input tax) from the VAT collected on the supplies made by the business (output tax). The most important document in such a system is the tax invoice. Without a proper tax invoice a business cannot deduct input tax on business expenses. 

 

Entrepreneur tracks invoice payments from mobile phone while on the go.

Smart Accounting Software such as QuickBooks Online lets you keep on top of your business while on the go.

A tax invoice must contain certain details about the taxable supply made by the business as well as the parties to the transaction. It must also be issued within a specific time frame after the supply has been made.

When you deal with taxable products, these invoices are used as evidence to ensure you receive your input tax credits. Without them, you could lose money. Make sure to clearly detail Tax Invoice when putting together your template.

As your business starts to grow, your invoicing needs will grow too. With QuickBooks, you can customise a wide range of invoice templates to suit your needs, and incorporate your business’s logo and colours. It’s probably the case that your business has outgrown manual invoicing. Better still, you can easily create and send invoices online, see overdue invoices at a glance and send reminders to your outstanding accounts.

Click here to find out more about how QuickBooks can be the invoicing game-changer your business needs.

Read more about how to create an invoice step-by-step.

Discover more free Small Business Resources at the Intuit QuickBooks Resource Centre to help grow your business in South Africa today.

See how QuickBooks Online Invoicing Software can help grow your business

Try it Free for 30 days

(no credit card required)

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.

Related Articles

What is SARS Registration?

If you’re operating as a business or are self-employed, it’s important to…

Read more

How to Keep Track Your Business Expenses by Simple Steps

Tracking your weekly and monthly business expenses ensures you always have up-to-date…

Read more

Is There a Market for Your Product?

So you have what you believe is a great product or service…

Read more