What is an invoice

An invoice is a commercial document that serves as a record of a transaction between buyer and seller.

The document is time-stamped and outlines payment terms, unit costs, shipping, handling, and other business line items (and their cost). In a nutshell, an invoice outlines the goods or services that you have provided and how much your client needs to pay in return.

What’s in an invoice?

An invoice is a formal business document. While each invoice may deviate slightly, there are a few essential elements to include.

• Invoice Number
  Each invoice has a unique invoice number that serves as a reference trail. There are several ways to assign invoice numbers, but it’s recommended that a single approach is maintained.

• Date
  An invoice needs to be time-stamped with the date that it is sent. Accuracy is essential to keep the books straight and make it easy to refer back to a previous job. The invoice also needs a deadline date for when payment is due.

  Normally, the due date is 30 days after the invoice date (the day the invoice is sent). However, some transactions give a bigger lead to help manage cash flow.

• Business Contact Information

  The invoice should clearly state the contact information of both buyer and seller, including the customer’s name and phone number. Contact information makes it easy to clarify any discrepancies or follow up on payment. Business contact information also ensures the legality of the document, so it’s important to get the spelling and information correct.

• Descriptions of Goods and Services

  Invoices consist of line-item details. Each line describes a rendered good or service and includes the cost per unit, the quantity, tax rates, and the total cost. These line items can be services based on an hourly rate, or actual products.

• Total Amount Due

  The total invoice amount should reflect all of the itemized goods and services. Make note of any discount applied and whether or not sales tax is included.

• Payment Terms

  Payment terms are included on an invoice to make sure that there is no confusion. The invoice should include the due date for payment, any discounts applied, early payment details, and late fees for late payments.

What is an invoice used for?

Invoices are used in most professional business transactions. Invoices are commonly used by freelancers and small business owners to request payment from clients or business owners they work with. Whether it’s a one-off project or a recurring arrangement, an invoice formalizes the transaction. An invoice on its own is not a legal document and is not considered a contract.

Invoices can be used to accomplish the following:

• Request timely invoice payment from clients, including partial payments or early payments

• Keep accurate financial records

• Payment tracking and bookkeeping

• Maintain legal protection

• Streamline tax filing

• Document work completed (when used as a timesheet)

• Assistance with business analytics

Invoice examples

There are different types of invoices, each serving a unique purpose. The nature of your business and how you provide your services will impact the type of invoice that you send.

The following invoices can be considered as a guideline.

• Pro-forma invoice: A preliminary invoice with an estimated cost breakdown to manage expectations

• Commercial invoice: Customs declaration used for export across international borders

• Credit notes: Used when there has been an error in a previously issued invoice, such as an incorrect amount or damaged goods

• Timesheet invoice: A cost calculated on services rendered on an hourly basis

• Retainer invoice: Created to collect advance invoice payment for products or services

• Recurring invoice: An invoice used for repeating transactions, sent to customers in intervals

How do you create an invoice?

Professional invoices come in many formats, including electronic invoices and paper invoices. You can use invoicing software to create different types of invoices, automate recurring invoices, or use invoice templates.

Read our article Everything You Need to Know About Creating an Invoice to learn the essential invoice elements, invoicing process, and more.