Introduction to Invoicing
What is Invoicing?
An invoice is any document that lists the services and products that your business provides clients with the intention to establish an obligation for the client to pay for the products and services rendered. Invoicing is an important concept especially for growing businesses, as an invoice template act as the most important business document that gets companies paid for their services.
Many professions employ invoice templates when getting started with invoices. These templates are time savers since you don’t have to repopulate the same information whenever you make an invoice. If you wish to learn more about this, InvoiceOwl.com is an invoicing software that is new on the market and ridiculously intuitive.
Invoices are very important for both the business and the client. Small businesses use invoices to facilitate invoice partial payment example by notifying the client of the amounts due for a particular service provided. For clients, an invoice is one thing that used to record and organize expenses with itemized details.
The topics discussed and questions answered below go into the details of all you need to know about the introduction of the invoice, define invoicing and what an invoice is, how to create it for small firms, and general information on invoicing and its beat practices.
The Oxford English Dictionary defines an invoice as a list of services provided or goods sent, with a payment statement i.e a bill. Invoices can best be described as the backbone of the online system for emerging companies. An invoice informs the client of their bill, the due date for payment, total cost, and the particular service that warranted the bill down to the littlest details.
Basics of Invoicing: Mastering The Process
Invoices are used as the base record for accounting in business. When you define the invoice, it can be extremely useful for recording all transactions a business broker makes with a client. Many professionals use bills for a variety of reasons, including:
- To keep track of sales
- To record business revenue
- To track inventory for products
- To ask for payments in a timely fashion
- To predict potential sales using historical data
Why Having Invoicing is Important
An invoice is considered a pillar of the businesses’ accounts and sales process. Still, many professionals think that how do invoices work? Well, it is the core record that serves as a bill for the products or services companies have provided. An invoice created with a proper process and format is considered as one of the legal documents that offer a required agreement whether it is a purchase invoice, interim invoices, or any other type of invoice.
Having invoices is important for the firm to keep a trail of payments and sales, stock levels, and balance sheets. They can also use invoices in case of overdue payments and take follow-ups with the most formal approach. Basically, the invoicing tool is the way to collect and tracking the payment that a seller owns to a buyer. In another way, the seller’s invoice generated for the sale of products or services is referred to as a buying or selling invoice and from the buyer’s invoices generated for the purchased products or services are called purchase invoices. Both sales and purchase invoices are important for any kind of company you own, as it helps you monitor all sales and purchase you make to maintain the cash flow.
Why Send Invoices?
An invoice is a good way for vendors, small businesses, and freelancers to bill clients for service rendered.
It is crucial for professionals to keep records of sales for protection and record-keeping goals. Below, we have highlighted the most important reasons why you need an invoice:
Record keeping is the most basic use of a sales invoice. A sales invoice can be used to track the delivery date of goods sold, the amount paid, and if there is any outstanding debt. In accounts, an invoice plays a crucial role in tracking employee sales and income.
The government doesn’t operate a fixed template or system regarding the type of invoices a company should use. For tax objectives, it is crucial to maintain and save all sales invoices. The IRS suggests that small companies keep an active summary of all balance sheets and sum of cash flow, which invoices are a significant part of.
This tax invoice will help the company when it is time to file taxes, VAT, or GST ensuring the correct payment amount is received and eliminating any chance of an audit.
Invoices can be a protective measure against civil lawsuits and fraudulent scams. An invoice proves that specific good or service was delivered at a certain time. A customer’s signature on the invoice can come in handy, in the event of a disagreement between the vendor and client. An invoice proves the sale occurred and provides specific details regarding pricing and delivery.
An owner that uses invoices can utilize sales data to target the company’s customer base. A good example is when businesses include data such as products sold, date of sales, and the price of goods sold. Marketing firms or computer programs are adept at curating this information to identify peak purchase periods, earning trends, and popular products. This is useful for creating business marketing strategies.
Important Elements of Invoicing
Usually, an invoice should have the following information:
- The word ‘Invoice’ highlighted
- A unique reference number or number of the invoice
- The date, the services or products delivered/rendered
- The date the invoice was sent
- Company name and contact information of the seller or supplier
- Registration number of the seller
- Purchase orders’ number of the buyer or recipient
- Name and contact information of the buyer
- Detailing of the line items/services
- The rate of the products/services
- The total amount and applicable taxes
- Payment terms and conditions
- Preferred payment methods and Payment link
- Thank you note
Do Invoices Need an Invoice Number?
Yes, it is necessary for invoices to have the number of invoices. Consumers don’t see the importance of invoices without any number, as it won’t be useful when they have to trace the transaction related to payments or advance payments with it. This means a vendor will have to reissue the invoice.
What Is an Invoice ID?
Also known as the unique number of invoices, the invoice ID is a number unique to each invoice generated by a company. The invoice ID is a significant invoice excellent because it acts as an identification to pinpoint individual transactions with customers.
It can include both letters and numerals. While an invoice doesn’t require the invoices ID to be numbered sequentially, it is advisable to employ a consistent invoice ID system to avoid issuing the same number of the invoice, multiple times.
How Can I Assign Invoice Numbers
There are many approaches that businesses use to assign invoice numbers. Among these approaches, the most common are::
A sequential process is the easiest way to assign invoice numbers. It remains the default option used by the majority of cloud-based invoice software vendors. To use the sequential process, you need to start with any number and then assign the best number in the sequence for future invoices. A good example is this:
- Invoices 001
- Invoices 002
- Invoices 003
Assigning invoice numbers in the sequence is a consistent way to create new invoices, without the fear of assigning duplicate invoice numbers.
The chronological method of assigning the no. of invoices involves sorting all invoices according to the date they were generated. The first set of numbers of the invoice ID must always refer to the date. Next, the number for the invoice will include a unique no. specific to that particular invoice. Any date format is accepted for chronological numbers of invoices. Say, you generated an invoice on February 17, 2020, and the unique ID is 0098, your no. for the invoice should look like this: 2020-02-17-0098.
By Customer ID
In some cases, certain businesses attach a unique customer ID to the customers, hence, you can assign a no. for the invoices to the customer ID. Using the customer ID process is similar to chronological numbering in many aspects.
In this case, the invoice ID starts with the customer ID no., and then the series of unique numbers follow suit. For example, if the customer is assigned a client ID no. of 057 with a unique no. of 003, the customers’ process for an invoice ID no. will show the ID as 057-003.
By Project ID
If your company caters to different projects at the same time and you work with consumers on a project basis, then it is smart to use project ID to assign a no. for the invoice. Many businesses in the construction industry employ this approach when estimating for payment.
To use project ID to assign the no. of invoices, the beginning of your invoice no. will be the project ID while the latter part will be sequential to differentiate between invoices for the same project.
For example, if you have a project ID 6221, and you need to create an invoice, the invoice number should be 6221-001.
What Does An Invoice Look Like?
A standard invoice looks simple, readable, and easy to understand while providing specific details on the service rendered and the amount to be paid by the client. Standard invoices must include the following :
- Business contact details
- Invoice number
- Owed amount
- Itemized list of services or products delivered
- Client contact information
- Payment method and deadlines
What is the best way to prepare an invoice?
There are many ways you can prepare an invoice. But there are three common ways a service provider or a company owner can create professional types of invoices i.e. interim invoices.
Using a template
You can have an online tool, software, or manual platforms like Microsoft Word or Excel, Google Docs, or Spreadsheets, PDF. These platforms provide professional invoices that are quick to customize and easy to fill in. There will be plenty of template options to choose from. Templates are usually designed considering common branding patterns so that most businesses can easily relate to that template. This also allows the businesses of any industry to make changes according to their company needs and their branding patterns. Such platforms and templates also have the ability to send invoices through an email or print it out and send physical copies to their clients.
Using accounting software
There are many accounting platforms are available in the market that allows you to fill out and create an invoice and send your own branded invoice from their online accounting platform. Some will let you send reminders for the overdue invoices and notify once the clients receive the invoices. Apart from that, such an accounting generator also allows you to manage your regular account needs and also allows clients to make a payment through credit card, internet banking, or third-party tools like PayPal so that you can get paid without any trouble.
Fill out a paper invoice
If you want to have a completely customized and hand-printed invoice and want to stay away from the computers, you can always fill out a physical paper-based invoice form. You can have readymade invoice pads which you will easily find at most large office suppliers or you can find out them online. Sending everything as paper-based invoices might sometimes delay payment from the clients, but it might impress some clients that will find creativity through the invoice. It is just a matter of point of view of the client who is going to make payment for the purchases they have made with or without any discounts and want to invest their money in your goods.
Free Online Invoicing
Online e-invoicing tools make it easier for businesses to create and send invoices. Such cloud-based online software is available any time for users with an internet connection, smartphone, computer, or tablet. When you start using a good billing software or invoice generator, it provides outstanding professional templates that are suitable for your business needs. Apart from this, it also fulfills your demand for legal requirements and tax objectives. Using these online invoice generators, you will be able to include all the essential detail such as the table of contents, company registration number, business information, purchase order, payment terms, due date, sales tax and help you set reminders for the invoices you have sent and overdue invoices.
Online billing is the best suitable and preferred method to save all the invoice info on the cloud. It has invoice settings that help companies to set reminders through the invoice settings option and also help you receive payment as per terms through credit card or PayPal quickly. Many companies have started using online billing tools for their firms because it saves lots of time and effort they take in creating invoices from scratch. These tools are very convenient and helpful for many professionals to maintain all the accounts need from one platform.
Types of Invoice Templates
If you are running a small business and want to collect payments on a regular basis but you might not want to spend lots of money on expensive billing or accounting software. In that situation, there are some quick templates that you can have free of cost. Using such templates you can quickly create professional invoices that help you get paid quickly. Here are the simplest and most effective formats that you can apply to present your invoice.
Microsoft Excel Template
Microsoft Excel (Version 2007 or later) has free basic invoice templates that are sufficient for small firms. With Excel invoice templates you can have simple calculations for totals and subtotals along with taxes. It is ideal for solving complex equations and creating professional looking invoices that will help you receive payment instantly. You can choose a suitable template from the tool’s template gallery that is easy to download, edit, and send.
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Microsoft Word Template
If you are not comfortable with Excel Sheets, you can also create your invoice using MS Word (Version 2007 or later). It provides exclusive invoice templates that are easy to fill in and customize. You just have to download the invoice template of your choice, add necessary business-specific information such as product or service description, prices, total amount, due date, sales tax or GST, and payment terms. Basically, you can give it a professional touch in your unique style with such ready-to-use templates and get paid in the quickest way possible. Templates created using word also enable you to attach the link for the payment and help you get paid without taking much hassle and get the payment receipt of it.
Google Doc and Google Sheets Templates
Google Docs and Google Sheets work as similar to MS Word and Excel works. The only difference is Google Docs and Sheets work online and auto-saves the information on the cloud whereas details added in .docs and .xls work offline and save the information on the computer. This feature makes Google Docs and Sheets more comfortable for business owners who travel from one place to another place. They can access their invoices from anywhere and make changes to it anytime and send it to the clients. Google also provides outstanding invoice templates for the ease of companies; you just have to open the invoice you would like to practice and start editing it and send it. Google also allows you to attach the method to make a payment from where clients can send you money straight from their bank accounts, credit card, debit card, or cash and get the payment receipts straightaway.