Invoicing probably isn’t anyone’s favorite part of doing business, but sending and receiving invoices is a critical part of most small businesses' workflows. In many cases, invoicing is necessary for you to get paid, making it a skill you’ll want to cultivate. What Is An Invoice? What Is An Invoice? Most simply, an invoice is a document that lists goods provided or services rendered to a client or customer, along with a statement of the sum due—in essence, an invoice is a bill. An invoice breaks down how many goods or specific services were provided, assigns a price to each item, and then adds up all the prices into the total amount that the invoice recipient owes. As the realm of freelancing and the gig economy balloons, invoicing has become an essential skill for millions of people to learn. However, many small businesses in a wide range of fields also use invoices, so understanding how they work is fundamental business-owner knowledge. Functions of Invoices Invoices are essential for businesses to receive payment and serve as legally-binding agreements between them and their clients. While the main purpose of an invoice is to present a record of sale, it can also help businesses with bookkeeping and financial tracking, tax record keeping, legal protection, marketing, and inventory tracking. Invoices are documentation of a business’ finances, which businesses can review over time to track revenue and scale profits and cash flow. Analyzing invoices can help businesses identify trends in demand and track inventory levels. Types Of Invoices Types of Invoices While all invoices serve the same general purpose, an invoice may be structured differently depending on the situation. Standard or Sales Invoice Also known as a regular or basic invoice, a sales invoice requests a payment for a product or service and is the most common form of an invoice. A sales invoice can be adjusted to fit most industries and billing cycles and includes the business’ information, the client’s information, payment terms, items that were purchased, and information for the client to use to make payments. Proforma Invoice You can send your client a proforma invoice as an estimate for a product or service before you complete the work. This acts more like a notice than a bill, giving the client a chance to look through the estimate and confirm the product or services provided. Interim Invoice If you find yourself offering a larger (and more expensive) service for a client, you can split an invoice to cover a portion of the costs when you reach project milestones or to provide smaller, more affordable payments to clients, if previously agreed upon. Interim invoices are helpful in managing cash flow for smaller businesses. Recurring Invoice Recurring invoices are sent on a regular basis for an ongoing product or service. For example, an IT business may charge clients the same amount every month for a package IT service. Clients have to pay on time for the service in order for it to continue. Final Invoice This invoice requests payment at the end of a project and includes similar items that a standard invoice has, such as the list of products/services provided, total cost of the project, deductions, payment methods accepted, and client/business information. Overdue Invoice When a client fails to submit payment for a product or service by the due date, an overdue invoice is necessary. Overdue invoices—which include details listed in the final invoice and late fees or interest charges—should be sent to the client immediately after one late payment. Credit Invoice A business owner can use a credit invoice, or credit memo, when they owe money to their client. This can be in the form of providing a client with a discount or correcting a previous invoice error. Clients can use this credit later for future purchases. When To Invoice When Do You Need To Invoice? In most cases, your invoicing experience will break down into two categories: you’ll either have a set invoicing process with your clients, or you’ll send out personalized invoices after you complete your work or send your goods on a case-by-case basis. If you’re delivering work to a client as an independent contractor—that is, you’re not working for an employer on a salaried basis—you’ll probably need to submit an invoice to get paid. Your clients might already have specific preferences for invoicing, like having regular deadlines for invoice submission and/or a template they want you to use. On the other hand, if you provide one-off services for a large, changing customer base, you’ll probably have complete control over your invoicing deadlines and your invoices’ format. However, you’ll probably want to come up with your own rules to keep your bookkeeping manageable. Components Of An Invoice Components Of An Invoice While every business has its own approach to invoicing, payees will expect to see several elements included in an invoice. Date/Invoice Number To start, each invoice should be dated, and you should assign an invoice number to each invoice for every discrete client or customer. Start with #1 for your first invoice to that client and go from there. Addresses Your address and the payee’s address should be listed—even if you get direct deposit. Product/Service Description You should also include a line for each product or service conducted, along with its detailed description. On this line, also include the quantity of each product or service rendered. If you’re providing services, you’ll probably want to give each task its own line. Price Provide the price of each unique product and service, along with a line total that multiplies the quantity of each product by its price. Adding dates for when the goods or services were provided is also helpful. Balance Due Add up your line totals to get a final total and put that at the bottom—perhaps in a big, bold font. This total amount is what you expect to be paid. Payment Terms You may want to include some details about when you expect to be paid, often within 30 or 21 days, as well as your preferred payment format (check, ACH transfer, or other option). To get the attention of any potential late payers, you should also include details about late payment fees, even if they’re mostly an empty threat. Invoicing Best Practices Invoicing Best Practices The following invoice best practices will help you stay on top of your outstanding account receivables. Don’t Be Late Even though invoicing isn’t glamorous, it is essential to getting paid. Ensure that you’re sending thorough, accurate invoices ASAP after a transaction occurs or by predetermined deadlines. If you submit an invoice in an untimely manner, that invoice might get shunted to another budgetary period, and you may have to wait weeks—or even months—to get cash in your hands. Keep Detailed Records Once you send an invoice, keep records of its total value and the date that you sent it. Knowing how much money you’re owed and when it’s due will help you to assess your cash flow situation. Especially if you’re sending invoices to many different clients, you’ll need to focus on maintaining accurate records, so you don’t forget about any money you’re owed. Don’t Be Afraid to Remind Never be afraid to send an email reminding a client that an invoice is unpaid, if they’re delinquent in paying it. You don’t have to be mean—but you deserve to get paid, and it’s totally reasonable for you to speak up about that. Technology now makes invoicing easier than ever with templates, and you can even create invoices on your smartphone using the Lendio app on the go. When you create invoices using invoicing software, you can better track revenue and cash flow. Invoicing software can also help you to understand who has paid you on time—and who needs a reminder. It can also easily show you which clients consistently pay you late.