There’s no feeling like getting paid for a job well done. Still, if you’re a freelancer or a business owner, you are probably aware that the whole process of receiving payment for sold goods or services isn’t as simple as it looks.
There are certain rules and standardized processes in the business world that we need to follow and adhere to. When it comes to financial transactions, invoicing is one of the most important things you need to be familiar with.
Before we get into “why” and the “how”, let’s take a closer look into the “what”.
What Is an Invoice and Why Should You Care?
Invoice is a commercial document which contains the details of a transaction between two parties conducting business. It is primarily used to provide information to the buyer about the specifics of the agreement.
However, invoices can also be of much use to the seller in many different ways. Primarily, of course, they are a useful way to keep track of transactions. Consequently, they allow the perfect conditions for easier tax filling.
Another interesting way of using them would be to discover patterns in past transactions in order for better assessment of the market and creating profiles of potential clients. Lastly, when the invoice has been signed by the buyer, it becomes a legally binding document, which can help the seller’s case immensely if things end up in court.
How to Write an Invoice?
There are many different types of invoices and each of them will have some specificities in regards to the type of transaction they’re intended for. Here are the six different kinds of invoices:
- Standard Invoice: This is the most common type of invoice, and it includes a detailed description of the goods or services provided, the quantity, the price, and the total amount due.
- Proforma Invoice: A proforma invoice is used when goods or services have not yet been delivered or performed. It includes a description of what will be provided, the price, and any terms and conditions that apply.
- Commercial Invoice: A commercial invoice is used for international trade and includes information such as the name and address of the importer and exporter, a description of the goods, the price, and any applicable taxes or duties.
- Timesheet Invoice: A timesheet invoice is used when billing for hourly work. It includes the number of hours worked, the hourly rate, and the total amount due.
- Recurring Invoice: A recurring invoice is used for regular payments, such as monthly subscriptions. It includes the amount due, the payment due date, and any terms and conditions that apply.
- Credit Memo: A credit memo is used when a customer is owed a credit, such as for returned goods or overpayment. It includes the amount of the credit, the reason for the credit, and any terms and conditions that apply.
These are the six most common types of invoices used in business transactions. It's essential to understand which type of invoice to use in a particular situation to ensure accurate billing and smooth financial transactions.
When writing an invoice, there are several essential bits of information you need to remember to put in.
- Buyer info - the details of the person or the company paying for the services or buying the goods, including name, address, phone number, and other relevant contact info
- Seller info - the details about you or your company including, again, name, address, phone number, and other relevant contact info
- Details regarding the goods/services being purchased - a short and concise description containing the date on which the goods or services had been delivered will do the trick.
- The amount being charged for goods/services - make sure to be direct and clear in regards to the exact amount and currency of the transaction.
- Due date - which can consist of a specific date or a time frame, depending on the agreement.
- Sales tax - which will depend on several factors and is unique to every state.
- Unique invoice identification number - necessary for accounting and preparing taxes, aside from helping with the organization of your invoices.
If you’ve never written an invoice yourself this might seem like more than a handful of information to be keeping track of. Creating a good invoice is a sure found way to look professional when interacting with clients.
That being said, mistakes are to be expected in any aspect of doing business and if your invoices are incomplete, you’re definitely running the risk of coming out as sloppy in the eyes of you’re doing business with.
The good thing is there are lots of online invoice templates you can use which are standardized and well-designed, so you’ll only need to focus on filling up the correct data.
In the end, whether you decide to use a template or go for something custom, it’s definitely a good strategy to stick with the design. That way, your documents will be properly organized and it will be much easier to browse through them in case you need to find specific information at any given time.
The Benefits of Doing Your Invoices Online
The process of doing invoices online is also known as e-invoicing. An electronic invoice is defined as “an invoice that has been issued, transmitted and received in a structured data format which allows for its automatic and electronic processing”, and there are more than a few reasons why “online” is the way to go.
Easier to send out
Everything is done through a few clicks of a button, you’re sending them directly to the person that is meant to receive it and you can do it while you’re traveling or on the road.
There are also tools and software solutions that can help you schedule your send outs which comes in handy in the case of recurring invoices.
Saves time and money
The process of e-invoicing is absolutely much quicker when compared to the traditional mailing of invoices. It saves time you’d usually need to send everything out, the delivery time is reduced to its entirety, and it also means spending less money on materials and no mailing costs.
Reduces paperwork
Not only does it save time and money, but it saves space as well. So many companies are getting themselves neck deep into paperwork unnecessarily. With everything neatly uploaded onto a cloud, you can do all the sorting and organizing you like from the comforts of your chair! Just think of all the space in your filing cabinets you’ll gain by switching to an online based model of invoicing.
The environmental benefits and the reduction of your carbon footprint are also a nice touch.
Simpler filing for taxes
Tax filing is one of the most stressful and unfulfilling tasks in the context of business. Still, if you have to do it, make sure you do it right. When the time comes, having all of your invoices online will be one of your most powerful tools and will help you get everything done quickly and accurately.
If you made sure to name all the files properly and sort them in a way that’s suitable for your needs, you’ll be browsing through them with utmost ease and momentarily extract any type of information you may need.
Mark is a biz-dev hero at Invoicebus - a simple invoicing service that gets your invoices paid faster. He passionately blogs on topics that help small biz owners succeed in their business. He is also a lifelong learner who practices mindfulness and enjoys long walks in nature more than anything else.
Author // Mark Thomasson
