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  • Invoices
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What is an Invoice?

Guide, examples, and what to include

An invoice is a document used to itemise and record a transaction between a supplier and a buyer.

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.

In this post, we’ll explore the purpose of invoices and provide some examples of how they work. We also have an invoice generator that you can try out to set up invoices for your small business.

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 customer payments in full and on time. They also serve as records of sale and provide a way to track:

  • The sell date of a good or service.
  • How much the business charged for the good or service.
  • Any outstanding balances the client owes.

Additionally, invoices can help you be prepared for filing taxes – so you know how much your business has spent – and to keep your information organised to help with auditing.

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

Is an invoice a receipt?

Invoices and sale receipts both include similar information, although they aren’t quite the same thing.

Companies use invoices to collect payments from customers, but they use sales receipt documents as proof of a payment that a customer has made to a seller. Companies use receipts as documentation to confirm that their customers have received the goods or services they paid for, and as a record that they have 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. Both are issued before a customer has paid for a transaction, but there are some differences between each term.

Invoice vs. Bill

  • An invoice records a sales transaction for which 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 for which 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 South Africa has its own requirements for invoice submissions, such as including the words “Tax Invoice”, “VAT Invoice” or “Invoice”, and the VAT registration number for your business. 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 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. You should assign invoice numbers sequentially so that the number on each new invoice is higher than the last. 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.


The invoice date indicates the time and date a supplier officially records the transaction for which it bills a client. The invoice date is a crucial piece of information because it defines the payment due date and credit duration. Generally, the due date is 30 days following the invoice date, although this can vary based on a company’s needs and the agreement it shares with a client or buyer.

Business contact information

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

Descriptions of goods or services rendered

You should enter every product or service you provide as a line item on your invoices. Include 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 a 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

Payment terms

To increase the likelihood of receiving payment on time, you should 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 payment to maximise your cash position and your likelihood of getting paid. You may choose to collect half of the payment upfront, impartial payments over time, or as an immediate payment upon completion.

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

Once you’ve set your payment terms 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, which 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.


Invoice example

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

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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:

Pro forma invoice

Pro forma invoices are issued to a customer before a product or service is delivered. Businesses use pro forma invoices to help customers understand the scope and cost of an upcoming project. Pro forma invoices are sent before a formal invoice is issued to give customers an estimate of how much a product or service will cost once it’s delivered. The terms in a pro forma invoice may need to be adjusted as a project progresses, but they can help businesses and customers to be 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 as its due date approaches. Interim invoices can help businesses manage their cash flow by allowing them to collect payments throughout the course of a project. Interim invoices can help you cover the costs associated with a project as work is completed rather than wait 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 repeatedly, 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. This type of 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 document the number of funds 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, your project scope increased, or you worked additional hours on a project after sending an invoice, you can issue a debit invoice to make up 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-upon 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 becoming 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 directly through an 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 not a standard format for commercial invoices, but some specific pieces of information are required:

  • The name, address, and phone number of both parties involved in the transaction
  • The goods being exported and reason for export
  • 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
  • The country or territory of origin
  • The Harmonized System code assigned to the goods being shipped
  • The number of packages being shipped and their total weight
  • The shipper’s dated signature

Invoice templates

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

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

Best practices for writing an invoice

As you create an invoice, keep the following 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 different types of products, include your SKU or product ID in the itemised list on your invoice.

2. Differentiate between purchase orders and invoices

Differentiate between purchase orders and invoices

Invoices are sometimes confused with purchase orders, but these documents serve different purposes. Make sure that you clearly differentiate between the two.

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

For example, a local coffee shop may want to buy five cases of espresso from their favourite distributor. The coffee shop owner would, in this case, sign a purchase order when they buy the product. The distributor will issue an invoice upon receiving the coffee.

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. With QuickBooks, you can create electronic invoices and accept payments from one location to improve the overall transaction process for your team and your clients.

When should invoices be issued?

Create and send an invoice as soon as you complete an order or service. Failing to quickly invoice clients can result in delayed payments, but timely invoicing can help you improve cash flow. Use Metrics like days sales outstanding (DSO) and the accounts receivable turnover ratio to keep track of payment speeds and your accounts receivable efficiency.

How long should you give someone to pay an invoice?

Define clear payment terms that outline how long your customers have to pay their invoices during the sales process. Net 30, or 30 days, is a common amount of time given to pay invoices, although you should decide on payment QuickBooks makes terms that make sense for your business, your customer, and your transaction. Options range from requiring payments in advance to Net 90 terms that give customers 90 days to pay their outstanding invoices. The cost and complexity of a project may factor into the payment terms you choose.

Are invoices legal documents?

No, invoices are not legally binding documents on their own. Invoices do not contain proof that a business and its customer have agreed on the terms of payment that an invoice outlines. To reduce the chances of a disputed invoice, businesses may create contracts that outline the details of a transaction. Contracts signed by both parties can act as legal documents, reduce the chance of misunderstandings about transactions, and speed up the payment process.

What happens when a customer refuses to pay an invoice?

Sometimes customers may disagree with an invoice they’ve been issued. When this happens, you’ll need to begin the process of resolving the invoice dispute. This starts with a conversation between you and the customer to determine which elements of the invoice the customer disagrees with. Some disputes can be resolved through discussion, although you may sometimes need to take legal action to collect payments if you and your customer can’t reach a resolution.

In other cases, customers may not have an issue with the invoice. Instead, they may have simply forgotten to pay an invoice according to the agreed payment terms. In this case, contact your customer about the unpaid invoice as soon as possible. If your attempts to collect payment aren’t successful, you have a few options, such as invoice factoring or taking legal action. Letting customers know you offer discounts for early payments or charge late fees on overdue invoices may encourage them to make timely payments.

Using accounting software to automate invoicing and accept payments

QuickBooks makes it easy to create and send professional invoices. Include discounts, payment terms, and more. When you’re ready, turn your estimate into an invoice with a click. Set up custom payment schedules to streamline the way you receive your money.

Key takeaways

Invoices are essential to business owners who need to keep records of sales. By crafting clear, informative invoices and following an invoicing process, you can appropriately represent yourself to the IRS in the event of an audit. Plus, you can increase the likelihood of getting paid on time, every time.

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