An invoice is a formal document used by businesses to list all the products and services sold to their customers. The document signifies a written obligation by the client to pay the business for the supplied products or services.
As you’d imagine, an invoice is a vital company document since it paves the way for payment for the rendered services.
A common way of generating an invoice is through an invoicing app, mostly found within your retail or B2B tools such as Turis. However, should you opt for a professional template, we’ll be sharing one with you later in this post.
Invoices are important both to a business and its customers. To a business, an invoice helps notify a customer about their payment obligation. Customers, on the other hand, rely on invoices for referencing their payments and recording itemized expenses for bookkeeping purposes.
Features of an Invoice
A solid, professional, and legally sound invoice should contain all the elements needed by the customer to make payments or seek clarifications. Below we dive into some core features of an invoice:
- The name “INVOICE”
- A sequenced invoice number
- Date of the transaction
- Name and contact of the seller or business
- Name and contact of the customer
- Lines detailing respective products and services
- Quantity and price per unit of the product or service
- Taxes (if any)
- The total price of the products or services
- A note to the customer
- Terms and conditions
While your invoices will be customized according to your business and customers’ needs, you’ll find the above-listed elements quite universal regardless of your industry.
Next, let’s delve into the functions of an invoice. Although they’re primarily used by businesses to highlight a customer’s purchase, in reality, invoices boast a wide spectrum of uses.
Functions of an Invoice
As earlier mentioned, businesses rely on invoices to obtain payments from their customers. Legally speaking, an invoice is a binding agreement between two parties, one consenting to buy goods or services at the stated price, with the other agreeing to receive the quoted payment in return. Due to its nature, an invoice plays a crucial role for both parties as stated below.
- Payments tracking. An invoice is a useful accounting document that helps the seller and buyer to keep track of amounts owed and paid.
- Maintaining records. Invoices help maintain records of legal transactions between buyers and sellers. Anyone can refer to the document to find out what was sold, to who, and by whom.
- Simplifies tax filing. Companies use invoices to accurately record their incomes and the resulting taxes.
- Legal document. An invoice is a legal proof document indicating an agreement between a buyer and seller and protects each party from fraudulent suits.
- Company analytics. Being crucial business documents, invoices provide useful insights for decision-making. Analysts use the recorded sales to set income projections, analyze sales trends, customer spending, and more. In essence, invoice data helps businesses to plan and use their resources more efficiently.
You’ve learned what an invoice is, its core features as well as functions – kudos! So, how can you come up with one, assuming you’re not using one of those awesome invoicing apps?
How to make an invoice (includes an invoice template)
Mastering how to write an invoice from scratch is an important business skill, even when planning to use an invoicing tool. Just like with cars, learning the basics behind a perfectly running car is as vital as proper driving. To create a professional invoice, be sure to follow the below steps to capture every last salient feature.
- Set up an invoice header containing your business details. Create an invoice header and inscribe your company details at the top. The details to capture include your business name, address, email, and phone number. If you’re a freelance, consider using your name and personal contact information. And if you have a logo, be sure to insert it too!
- Add a section for the customer details. This section features your client’s contact information. Even when dealing with a company, you might want to clearly address the invoice to a specific recipient, such as a procurement official. It’s generally a good practice to identify an ideal contact person before issuing an invoice. Next, list the address of the company and phone number, together with the email of your point of contact.
- Outline invoice details. Invoices must contain unique identification numbers to help you keep track of each. The key here lies in choosing an invoice numbering system that works for your business, with zero complexities to avert confusion. Consider starting with ‘1’ for the first invoice as you move along. It’s common for people to add some numbers or letters before the actual number – i.e., 001, 2021/001, INV001, and so on – however, it’s best you keep it as simple as possible. Also, ensure that you indicate the date of the invoice.
- Highlight your terms of payment. Your clients need to know when and how you expected to be paid for your products or services. This requires that you include a due date. Businesses will sometimes go for a 30-day billing cycle meaning, if you sold goods on 1st May 2021, you expect payment from your clients not later than 30th May of the same month. On top of that, you’ll want to include your preferred payment methods such as PayPal, credit and debit cards, Bitcoin, etc. In case you impose late payment fees, clearly communicate this to your clients well in advance to avoid future misunderstandings.
- Itemize your offerings. To ensure that everything remains open, don’t just lump up a client’s bill; instead, list all the items that add up to their total bill. Consider presenting the information in a column showing rendered services, /quantity/hours, date, rate, and subtotal.
- Indicate resulting taxes. Depending on your location and the nature of products and services, you will be required to collect different types of taxes. Find out from your local tax office the specific types of taxes applicable to your business.
- Include invoice notes. While you’re not mandated to do this, adding a personal note for your customers goes a long way in showing them that you appreciate their business. So, the next time you send out an invoice, be sure to include a simple “thank you” message for your customer. It not only boosts your brand image, but also goes a long way in helping you get paid faster.
As earlier promised, here’s an excellent invoice template containing everything we’ve discussed above:
In summary, a good invoice is more than a sales receipt. It is also a legal document that cushions your company against risks and errors. A good invoicing tool will help you streamline your business processes while building your customer rapport. In this internet era, a mobile-friendly invoicing app is a must-have for any retail or wholesale business looking to match up to the 21st Century market dynamics.