No matter if you just run your business from home or sell goods or services anywhere online – it is essential that you know how to write an invoice if you run your own business.
- What is an Invoice?
- Invoice requirements
- Different Types of Invoice
- How to Invoice a Customer
- How to Write an Invoice – Sample Invoice
- Who needs to write an invoice?
What is an Invoice?
An invoice, which is often referred to as a ‘Sales invoice’ is a document. This document is sent by the person who provided goods or services to the person or company who purchased those goods or services. An invoice shows that there is an obligation on the part of the person or company who purchased the products to pay. In other words, an invoice is a verification of the agreement that the seller and the buyer of the services made.
According to the HMRC, your invoice must include:
- a unique identification number
- your and your customer’s company name and address
- your contact information
- the invoice date
- the supply date
- the price for each item
- a description of your additional charges
- VAT amount (if applicable)
- the total amount owed
Different Types of Invoice
If you know a thing or two about invoices, you’ll no doubt be aware that there is more than 1 type of invoice. However, if you are new to the world of invoices you may be asking: What are the invoice types that you should be aware of? Don’t worry, you don’t need to know about every type of invoice out there, just the type of invoice that applies to you and your business. The different types of invoices you might need to know when you learn how to write an invoice are:
- Standard invoice
- Commercial invoice
- Progress invoice
- Utility invoice
- Recurring invoice
- Proforma invoice
- Debit memo
- Pending invoice
- Value-based billing
- Fixed-based billing
- Time Based billing
An invoice such as this has a basic invoice format and can be used for a range of business transactions. Included is the invoice number, name and contact details of the seller, and the name and contact details of the buyer. It also includes the items that were purchased and the total cost.
An invoice such as this is one that includes documentation of foreign trade, for example. A commercial invoice is used for customs declaration when a product is needed to cross borders. Included is the invoice number, name and contact details of the seller, and the name and contact details of the buyer. The invoice requirements include the items that were purchased, the total cost and the tax payable. Also included are the country of origin and the individual in charge of the transaction.
This type of invoice works over a period of time and is often used in the construction industry. Contractors usually send progress invoices showing the progress of work that has been carried out. It may also include a quote that shows how much they have to pay their employees and what they need to cover their expenses.
This is an invoice that is used to determine who has provided services and how much time they spent providing those services. Invoices such as these are usually used by lawyers, teachers and consultants. The employment of labourers is often conducted on a time basis. Timesheets can mention the time in place of the product and can appear on car rental timesheets, for example.
This is the type of invoice that we tend to see when we receive an electricity bill or any other type of utility bill. It shows the amount that needs to be paid, a due date, and the billing period. The penalty for late payment may also be mentioned on the invoice.
An invoice such as this is often used by the rental industry. Recurring invoices are those which are delivered at the end of the month and have a fixed rate.
These invoices give customers an idea as to how much the services or products cost. Also known as a ‘Quote’ or ‘Estimate’ these proforma invoices also form a seller’s declaration of their commitment to delivering their services or goods at an estimated price.
A debit memo is given to an organisation who does not pay the whole bill on time and it works as an invoice, showing the balance owed and any late fees.
This is the pending payment or balance amount that is part of a pending invoice. The outstanding amount which was not previously paid is shown in a pending invoice. The customer will receive a pending invoice until the full payment has been made.
This type of invoice is based on the services that the client received. It is, in essence, a performance-based form of billing. The invoice’s amount will depend on the amount of work that was delivered as opposed to the time that it took to complete the work.
This type of invoice is ideal for any project that has specific requirements. For example, a freelance writer may quote a specific price for the completion of a written article.
This type of invoice is ideal for those who can calculate how many hours they have worked, and how much they wish to charge per hour. You can, therefore, calculate how much the project in question will cost you.
How to Invoice a Customer
When you need to invoice a customer, you may wish to use some business accounting software or an invoice template. Whichever method you choose to use the process for creating an invoice works the same way.
You need to prepare an invoice once you have delivered or shipped the product or service to the customer.
You will need to:
- Identify the customer or job.
- Include any document numbers that relate to the sale, such as sales agreements, estimates or purchase orders.
- Identify the items that were sold and delivered. You should also include the name of the service or product along with the quantity or time. Include the rate per item or per hour and the total for each item.
- Ensure that every item has its own line and the number of lines is added.
- Include any information about deposits that the customer has already made and any discounts that need to be included in the invoice.
- Consider allowing your customer to use different payment methods. You may also want to think about offering a discount for invoices paid in cash.
- Make sure you include the shipping terms for any products that you have shipped. There are two different types of shipping Free on Board (FOB) shipping and FOB destination. If the terms of the sale relate to FOB Shipping the seller pays for the shipping costs. If the terms of the sale relate to FOB destination, then the buyer will pay for the shipping. You may also want to note whether the customer has picked up the item(s) if applicable, so you can deal with any query about the item being received.
- Finally, you will need to include the terms of sale. In other words, when would you like the buyer to pay you? Will you give a discount for early payment? Terms of sale can be expressed in this way: 2/10 Net/30. This means you’ll give the buyer a 2% discount if they pay within 10 days, and the whole balance is due in 30 days.
How to Write an Invoice – Sample Invoice
This is what your invoice might look like:
Business Phone Number
Business Email Address
Payment is due within xxx days.
Thank you for your business!
Who needs to write an invoice?
If you run your own business or you if you sell goods or services anywhere you need to write an invoice. An invoice will help you keep track of your sales and the dates that goods or services were sold. An invoice can help you and your customer to determine how much your goods or services will cost in the future. They can also help you to keep track of all of your incomings and outgoings, which is vital if you run a business. If you want to automatize your invoicing process, you might want to create invoices with an accounting software.