If you own a business that’s involved with clients or providing services, invoicing is a significant part of the play. This guide shall show you the ins and outs of invoicing—from templates and workflow to approaching late-paying buyers. You may learn some tips and tricks that make invoicing a walkover. While you are working for yourself, a major reason for getting paid on time and keeping your finances flowing is having an effective invoicing process. On the opposite side, if your invoicing methods aren’t competitive enough, your clients may take longer to pay you and that’s not good for any kind of business.
What is an Invoice?
The precise definition of an invoice is that it is a document that is created when a person owes you money for some goods or services you provided. It is what you send to your client after you’ve delivered your product, but before you have been paid. An invoice will display the due balance and a detailed description of what the owed money is for. It tells your client how much they owe you, and defines the payment terms they need to follow. Sellers may also call it a “sales invoice.”
If you’re selling to another business, the invoiced amount gets entered as accounts payable in their books—money coming out of their pocket. At your end, it would be itemized as your accounts receivable—money going into your coffers. Invoices can be sent by postal mails or more commonly these days, by emails. They leave a paper trail, or a document trail (if e-mailed). And that’s something good for you, especially in case of an audit by the IRS. Having well-organized, numbered invoices, works like magic with the IRS. As you can easily explain to them where your money came from.
Invoice vs Bill vs Purchase Order vs Receipt
There are a few financial documents that may sound similar to an invoice but are used differently. Since they’re often mixed up by new entrepreneurs, not knowing finances much, they’re worth getting distinguished here.
- An invoice is not a bill: A bill is sent to collect payment immediately. For instance, when we go to a restaurant, we are not given an invoice at the end of our meal—we are served a bill.
- An invoice is not a purchase order: A purchase order (PO for short) is sent by a customer to a vendor, requesting specific goods or services, and maybe the terms. It is sent before the invoice gets created. As a vendor, you would first receive a PO, fulfill the order according to the terms, and then send an invoice to collect payment.
- An invoice is not a receipt: A receipt is a kind of official acknowledgment that an order has been completed and was paid for. If you send your client a receipt, you’ll do so right after the client was invoiced by you and you got paid on that invoice.
What to include in an Invoice
When preparing an invoice, make sure it contains all of the vital information, so that your client understands every factor of the transaction and knows exactly what to do. Let’ go through the elements you should include so that nothing is amiss.
- Include the word ‘Invoice’ – This might seem like an obvious word to include, but it may be missing, due to the same reason. So whatever form your invoice takes, it’s important to include this word to clearly convey to the person or business you’re sending it to, what it is.
- A Unique Invoice Number – For ease of tracking the invoices, they each should have their own serialized number e.g. invoice #001 followed by invoice #002 and so on. This will help both you and your clients.
- The name & address of your company – Whether you’re a freelancer or an S Corporation, your invoice should display your company’s company name and address, and/or your name. Also, contact details to get in touch in case of any queries about the invoice.
- A description of the services or goods supplied– Whatever product or service was supplied to the client needs to be included on the invoice, with each individual part in a separate line.
- Dates – Two dates must be entered on every invoice you send, the supply date and the invoice date. These may or may not be the same. The supply date highlights when the work/goods were supplied in relation to the date the invoice was created.
- Payment Terms– Also a must-list item is the terms of payment e.g. “due on receipt” or “payment within 7 days”. They usually appear at the end of the invoice. Often, shortened terms “Net 15” or “Net 0” are used, which imply due in 15 days or due upon receipt, respectively.
- The amount payable– Adjacent to the list of items supplied or delivered, you should also mention the individual price of each separate item. And all these must be totalled out at the bottom. This provides clarity to both parties and very handy for your bookkeeping services.
- The customer’s name and address– Including the customer’s name and address is a standard procedure. It’s good for your records too. As well as for your customers, helping them to claim back VAT when required.
- Purchase order number– If a PO was supplied to you, it should be displayed on your invoice. If one was provided, it represents a legally binding agreement between you and your customer to which this invoice is referring.
- Payment Options– Last on the list are the available payment options. These may include bank checks, bank transfers, PayPal, or whatever method you have. Just ensure that all details and references provided are 100% correct.
How to prepare an invoice
There are three ways available for preparing an invoice.
- Use a template: Under this, you can use a software template—in MS Word or Excel, for example—each time you send an invoice. You can either attach it to an email or print it out and send it as a physical copy. Here is one you can use.
- image or pdf or word document
- Use accounting software: Many types of accounting software are available that let you fill out an invoice template. Some may even have the feature for you to email the invoice from within the app. This approach is good if you already use the same software for your regular accounting purposes. Otherwise, software dedicated to managing invoices may be a better choice.
- Fill out a paper document: If you like the feel of the paper, you can always send out a physical invoice. These come in pad form, are available at most large office supply stores. Or you can order some online too.
If your business is small for now or not invoicing frequently, you may not be requiring specialized software or specific services. In that case, you may use the formats and generators available online to quickly create invoices. There are many available that are the simplest and most effective ones.
- Microsoft Excel template: You can easily create a free, basic invoice template in .xlsx format by yourself.
- Microsoft Word template: Or you can create a word .docx file also.
- Google Doc and Google Sheets templates: Both Google Doc and Google Sheets provide simple, basic templates on Invoice Simple. Once you find the invoice you’d like to use, just go to File and select “Make a copy…” to create an editable copy.
- Online invoice generator: A few free invoice generating platforms are also available online where you can create simple invoices. When you use such platforms, they automatically save your info, so you can create faster invoices in the future.
What are the types of invoices
Depending on your company or the service you provide, there are various types of invoices that may suit you the most. Here are some common forms of invoices:
- A proposal (or bid): If you do large jobs or projects, you would need to create a proposal or bid for the work. It should detail what the services are expected to cost when all is completed. Be sure to make it clear that these are estimates for the work, not the final price.
- Interim (or progress) invoices: For time-taking projects, it makes sense to issue interim invoices. So the clients can pay for work at its stages, rather than in one big lump sum when the whole job is completed. Interim invoices should be followed by a final invoice detailing all the work (and what has already been paid).
- Timesheet invoices: This type of invoice is good if you have a business where you charge by the amount of time they use your services for. These invoices are usually popular with consultants, lawyers, psychotherapists, and other professionals, providing services that are intellectual. Or when an item is rented for a specific amount of time, such as vehicles, furniture, and pieces of construction equipment.
- Recurring invoices: If you have a business that provides regular, recurring work to clients (say, if you’re a cook, housekeeper or a dog walker), you may want to send recurring invoices at regular (pre-fixed) intervals (weekly or monthly, for example).
- Final invoices: A final invoice lays down all the services rendered for a specific job or project. If any interim invoices were issued during the project, the final invoice would list those, as well as the final outstanding amount.
- Past-due invoices: If a client did not pay for an invoice, you may need to send another new one. One that includes the charges resulting from late payments (which were detailed in the terms and conditions of your previous invoice).
How to track your invoice
When it comes to invoicing, you should run a tight ship. You should put such a system into place which ensures that you send invoices and receive payments in a timely, organized custom. Here are some tips to help you better manage your invoicing workflow:
- Send invoices quickly: You won’t get paid if you don’t send an invoice. So the first rule of the invoicing system must be to send invoices right after the job is completed.
- Send the invoice to the right people: Most of the time, the actual client doesn’t take care care of the invoice. It may be an accountant doing the bookkeeping, or someone in the family, if its a small business. It is advised to email the invoice to, both, your client and whoever’s actually in charge of paying so you can get your money as quickly as possible.
- Use online invoicing: Emailing invoices helps keep them from getting “lost in the mail.” When invoices are sent online, it’s also easy for clients to find them—they just need to search their inbox.
- Set terms that are crystal-clear: You need to clearly outline your terms and conditions, both, at the time of taking up the job, as well as on the final invoice. This includes the late fees associated with delayed payments, if any. Having everything written is the key to averting painful back-and-forth.
- Have an organized recording system: Records of all your invoices should be kept in one location, in an organized way. This is not only crucial for bookkeeping and taxation purposes but also for staying ahead of things. Invoices should be stored right and be sortable, by their statuses, client-wise, and date-wise.
How to get faster payments
To date, we have seen an exchange of thousands of dollars been paid through invoices. Based on some trends and data we experience, we list out certain steps you can take to ensure you receive your invoice payments quickly. Using these strategies smartly will ensure your invoices are paid quickly and seamlessly.
- Send invoices on Thursdays. We’ve found that invoices sent on Thursdays are most likely to be paid within two days.
- Customize the due date on every invoice you make, according to the client. You should add a message for the recipient, with the invoice, to request that the customer issue payment upon receipt. This would lead to faster payment returns.
- Avoid emailing invoices to clients on Sundays. People are least likely to check the messages sent on Sunday—it being off, or busiest or even the laziest day of the week.
How to deal with late payers
It’s a very normal occurrence that some clients typically forget to pay. It’s always frustrating but hard to avoid. But a proper invoicing system laid down at your end, and reminders set, it gets super-easy to follow up with the late-paying customers. When everything is sorted in your own dashboard by what hasn’t been paid and from whose side, you can quickly resend and remind the delinquents who might need just that. Saving you the time of having to sit down and check through invoices, every day. There are some other things you can do to make collecting on overdue invoices hassle-free.
- Set clear terms: A great way to collect outstanding invoices on time is to be clear with your terms from the start. As also mentioned above, and we can’t stress it enough. When you send your clients an invoice, specify the due date clearly. For those customers, regularly late with payments, you should customize the invoice and add a reminder note about the expected payment date in the personal message field.
- Send a friendly reminder: With the hordes of emails that we receive these days, there is a possibility that your email invoice got lost in the customer’s inbox. If an invoice is past its due date, it’s worth hitting the “Remind” button. A personal message can also be sent with a link to their invoice and payment option. If you expected a late payment from the start, you can set up email reminders at the time of creating the invoice.
- Go old-school: Certain clients don’t respond to email. It would pay to snail-mail them a paper invoice, instead. Just take a print-out of the invoice sent on mail and put it in an envelope.
- Use carrot and stick formula: If you frequently have many outstanding invoices become overdue, you might consider incentivizing earlier payment. Providing motivations for early payment can help ensure that there are fewer unpaid invoices to track down left at the end of the month. You may also charge penalties for past due invoices because they do affect your cash flow. The longer an invoice goes unpaid, the fee amount increases. Just make sure to include this penalties policy in all contracts or preliminary agreements with your customers.
Spending a little extra time and money can help to implement a scalable invoicing workflow. This will actually save you time and money in the long run. Using a professional accounting service like AutoFilings will make invoicing convenient for you and your customers. Sending and keeping track of them is assured. So get connected with us here and make your life trouble-free.