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Making and sending invoices is one of the less glamorous (but arguably most important) parts of running a business. Whether you’ve never made one before or you’ve been doing business for a while and want to double check your invoices are correct, this guide runs through what they are, the various types and how to make one. You’ll also find a downloadable, free invoice template that you can edit with your own business information.
What is an invoice?
An invoice is a bill that requests payment and records a transaction between a seller and buyer.
It shows a break down of the purchase, usually through a detailed, itemised list, of services or products that have been supplied. And it will usually include the date of purchase, the quantity, the price and the payment terms.
What are invoices used for?
Invoices are a key document for bookkeeping and accounting – they’re required as proof of income for tax purposes.
Invoices can also act as a legal document in the case of overdue or missing payments, as they are a binding agreement between the seller and customer.
Almost any industry can use an invoice, but they are mostly used by service-led industries and consumer industries that buy large quantities of stock.
Discover our invoices templates
If you need to create an invoice, but you’re not sure where to start, we’ve created a pack of blank templates in three different formats – PDF, Word and Excel – including options for VAT-registered businesses.
Once downloaded, you can customise and populate these with your own information.
Types of invoices
There are many different types of invoice, but here are the most common types of invoice used by freelancers, small businesses and contractors:
- Standard invoice: this is the most common type of invoice, which records a sale between a buyer and seller. The flexible format of a standard invoice makes it easy to adapt to many industries.
- Commercial invoice: for businesses that buy and sell goods overseas, a commercial invoice details the cost for customs officials to decide if import duties need to be paid.
- Proforma invoice: this is similar to a standard invoice, but it’s sent to the buyer before the goods or services have been provided. This type of invoice is given as an estimate and used when the terms of the sale are subject to change.
- VAT invoice: if you’re a VAT-registered business, you may send this type of invoice to charge or reclaim VAT on the sales you make or buy.
- Recurring invoice: if you regularly provide the same goods or services to the same customer either through monthly payments or a subscription, this is where a recurring invoice comes in handy.
What to include in an invoice
Getting the right information on an invoice is super important for making sure you get paid on time. Any mistake or omission could lead to late payments or struggling to request payment if information is missing.
No matter the type of invoice you’re creating, each one should have these 10 pieces of information:
- Your name, if you’re a sole trader
- Company name and address (this will be your registered name and registered company address if you’re a limited company)
- Registration number, if you’re a limited company
- Invoice number
- Description of goods and services
- Net amount
- The date the invoice was sent
- The date the goods or services were delivered
- A calculation of money owed
- How the recipient should pay, including a due date for the payment
If you’re creating a VAT invoice, you’ll need to add some extra information. You can read more about VAT invoices on the gov.uk website, but as a rule of thumb, you’ll need to add these bits of information to your invoice:
- Your VAT number
- The tax point, or time of supply: this is the date that the transaction took place
- The total amount of VAT
- Rate of VAT charged per item
- Total amount including VAT
What is an invoice number?
An invoice number is a unique code that’s assigned to each invoice sequentially and systematically. It’s a key part of every invoice – without an invoice number, an invoice is not considered a legal document.
An invoice number is used to identify a transaction so it’s key that your invoice numbers follow a unique and consistent format. It’s up to you how you format your invoice codes and they can be a combination of letters, numbers and specials characters, such as hyphens and slashes, but legally they should never contain gaps.
If you choose an alphanumeric format, the letters in the invoice should stay the same, only the numbers should increase.
You may choose to add the date, year or an abbreviation of the company the invoice is being sent to so that it can be easily and instantly identified.
If you’re just starting out, you won’t have sent many invoices, if any at all. But it’s important to consider your company’s growth when thinking about a format to choose.
Here are some examples of invoice formats:
How to send an invoice
It’s best to check with the recipient first hand how they’d like to receive their invoice. The most common way to send an invoice is via email. What to include in the email will depend on the recipient’s process as well as your current business relationship with them.
It’s recommended to save your invoice in PDF format to ensure it cannot be edited by the recipient and you could include a brief description of the invoice or any questions you have about when the payment will be made in the body of the email. The recipient should acknowledge receipt of your email and it’s always useful to set up a reminder in your calendar to check if the invoice has been paid however many days are in your payment terms after the email’s been sent. If it hasn’t, you can then follow up and give them a polite chase.
What to do if a payment is late?
So, you’ve sent the invoice and the payment date has now passed, but there’s still no money in your account – what do you do?
Having a good invoice with proper payment terms in place can really help out here. In the first instance, it’s always worth chasing with a polite email to your contact asking if there’s a reason for the delay. A lot of the time, late payments are down to human error, so it could just be a mistake!
If you still have no joy, we’ve detailed a handy process to follow if a customer is refusing to pay.
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This content has been created for general information purposes and should not be taken as formal advice. Read our full disclaimer.