What is an invoice? Definition, types and how to create one

Published Thursday 23 July 2026

Table of contents

• What is an invoice?
• Why invoices are important for your business
• Types of invoices
• What to include in an invoice
• When to issue an invoice
• How to create and send an invoice
• Invoice payment terms explained
• How to manage unpaid invoices
• How long to keep invoice records
• Invoice vs quote vs receipt
• Simplify your invoicing with Xero
• FAQs on invoices

Key takeaways

• An invoice is a formal document requesting payment for goods or services, and issuing them correctly helps you stay on top of cash flow and meet your tax obligations.
• If your business is registered for GST, you're required to provide tax invoices that include specific details like your ABN, the GST amount, and a description of what you supplied.
• Setting clear payment terms and following up on overdue invoices promptly can reduce the time you spend chasing payments.
• You must keep invoice records for at least 5 years to meet Australian Taxation Office (ATO) requirements.

Getting invoicing right is one of the most practical things you can do to keep your business finances organised. Whether you're new to invoicing or looking to tighten up your process, this guide covers everything Australian small businesses need to know. For a deeper look at the invoicing workflow, see the complete invoicing guide.

What is an invoice?

An invoice is a document you send to a customer requesting payment for goods or services you've provided. It sets out what was supplied, the amount owed, and when payment is due.

You might hear the terms "invoice" and "bill" used interchangeably. They refer to the same document, just from different perspectives. When you send the document, it's an invoice. When your customer receives it, they might call it a bill.

There's also a distinction between a sales invoice and a purchase invoice. A sales invoice is what you send to your customers when they owe you money. A purchase invoice is one you receive from a supplier for goods or services you've bought. Both are important for keeping accurate accounts receivable and financial records.

Why invoices are important for your business

Invoicing isn't just about getting paid. It's a core part of how you manage your finances, meet your legal obligations, and communicate professionally with your customers.

Cash flow management: Invoices are directly tied to your cash flow. Sending invoices promptly and tracking when they're paid gives you a clear picture of the money coming into your business and supports healthy cash flow management. According to Xero Small Business Insights, late payments across Australian small businesses averaged 6.6 days past the due date in the December quarter of 2025: the second-lowest figure on record.

Tax and legal compliance: If you're registered for Goods and Services Tax (GST), the ATO requires you to issue tax invoices that meet specific criteria. Proper invoicing also supports your Business Activity Statement (BAS) lodgements and ensures you can substantiate claims if you're ever audited.

Professional communication: A well-structured invoice tells your customer exactly what they're paying for, when payment is due, and how to pay. It reflects well on your business and sets expectations clearly.

Dispute prevention: Detailed invoices reduce the chance of misunderstandings. When the goods or services, quantities, and prices are clearly listed, there's less room for disagreement down the track.

Types of invoices

The type of invoice you use depends on your GST registration status and the nature of the transaction. Here are the most common types for Australian small businesses.

• Tax invoice: required if your business is registered for GST and the sale is over $82.50 (including GST). It must include specific details like the GST amount and your Australian Business Number (ABN)
• Regular invoice: used by businesses that aren't registered for GST, or for sales under the $82.50 threshold. It doesn't need to show a GST amount or be labelled "tax invoice"
• Pro forma invoice: a preliminary invoice sent before goods or services are delivered. It outlines the expected costs and is often used for quotes or advance payment requests
• Recurring invoice: used for ongoing services where you charge the same amount at regular intervals, for example, a monthly retainer or subscription
• Credit note: issued when you need to adjust or cancel a previously issued invoice, for example, if a customer returns goods or you overcharged them

What to include in an invoice

What you need to include on an invoice depends on whether you're issuing a tax invoice or a regular invoice. Getting these details right helps you stay compliant and makes it easier for your customers to pay.

Tax invoice requirements

If your business is registered for GST, your tax invoices must include the following.

• The words "tax invoice" stated clearly
• Your business name (or the supplier's name)
• Your ABN
• The date the invoice was issued
• A description of the goods or services supplied, including quantity and price
• The GST amount for each item (or a statement that the total price includes GST)
• The total amount payable

For sales of $1,000 or more (including GST), you also need to include the buyer's identity or ABN.

Regular invoice requirements

If you're not registered for GST, your invoices should still be professional and include enough detail for clear communication.

• The word "invoice" (not "tax invoice")
• Your business name
• Your ABN
• A unique invoice number
• The date of issue
• Your contact details
• A description of the goods or services provided
• Payment terms and due date
• The buyer's name

Recommended extras

Regardless of the invoice type, it's good practice to include a unique invoice number for easy tracking, your contact details so customers can reach you with questions, and clear payment terms so there's no confusion about when and how to pay.

When to issue an invoice

Knowing when to issue an invoice helps you stay compliant and keeps your cash flow moving.

If you're registered for GST and the value of the sale is more than $82.50 (including GST), you must provide a tax invoice. If a customer requests a tax invoice, you're required to provide one within 28 days of the request.

As a general best practice, send your invoice as soon as the goods or services have been delivered. The sooner you invoice, the sooner you can expect payment. For project-based work, consider invoicing at agreed milestones rather than waiting until the project is complete.

How to create and send an invoice

There are several ways to create and send invoices, depending on how your business operates.

Accounting software: Tools like Xero let you create professional invoices, set up automated reminders for overdue payments, and accept online payments directly from the invoice. This saves time and reduces the manual work involved in chasing payments.

Invoice templates: If you're just starting out, you can use a pre-formatted invoice template in a word processor or spreadsheet. Make sure it includes all the required details for your invoice type.

E-invoicing: E-invoicing through the Peppol network allows businesses to send and receive invoices electronically in a standardised format. It reduces data entry errors and speeds up processing. The Australian Government supports e-invoicing for business-to-government and business-to-business transactions.

You can send invoices by email, post, through your accounting software's built-in delivery system, or in person. Email and accounting software are the most common methods because they're fast and create a record of when the invoice was sent.

Invoice payment terms explained

Payment terms tell your customer when you expect to be paid. Clear terms reduce confusion and help you manage your cash flow.

The most common payment terms are:

• Net 7: payment due within 7 days of the invoice date
• Net 14: payment due within 14 days of the invoice date
• Net 30: payment due within 30 days of the invoice date

You can also offer early payment discounts to encourage faster payment, for example, a 2% discount if the invoice is paid within 10 days. This can be effective for larger invoices where the discount represents meaningful savings for your customer.

According to Xero Small Business Insights, Australian small businesses waited an average of 23.9 days to be paid in the December quarter of 2025: the fastest result since the series began tracking payment times in 2017. Choosing the right payment terms for your business and your customers can help you keep those times low.

How to manage unpaid invoices

Late payments are a reality for most small businesses. Having a clear process for following up makes it easier to recover what you're owed.

Payment reminders: Start with a polite reminder shortly after the due date. Accounting software like Xero can send automated reminders, so you don't have to keep track of overdue invoices manually.

Letter of demand: If reminders don't work, you can send a formal letter of demand. This is a written notice stating the amount owed and a deadline for payment. It's often the step before taking further action.

To reduce the chance of unpaid invoices in the first place, try these practices.

• Set clear payment terms upfront and include them on every invoice
• Offer multiple payment options so it's easy for customers to pay, for example, bank transfer, credit card, or online payment
• Include detailed descriptions on your invoices so customers know exactly what they're paying for

How long to keep invoice records

Record keeping is a legal requirement for all Australian businesses, and invoices are a key part of your records.

The ATO requires you to keep your business records, including invoices, for at least 5 years from when you prepared or obtained the record, or from when the transaction was completed (whichever is later). This applies to both invoices you've sent and invoices you've received.

You can keep records in electronic or printed format. Electronic records are generally easier to organise, search, and back up. Using accounting software or a document management tool like Hubdoc (part of Xero) can help you store and retrieve invoices without the hassle of paper filing.

Invoice vs quote vs receipt

Invoices, quotes, and receipts each serve a different purpose. Understanding the distinction helps you use the right document at the right time.

• Quote: an estimated cost for goods or services, provided before the work begins. It gives the customer an idea of what to expect and isn't a request for payment
• Invoice: a formal request for payment, sent after goods or services have been delivered (or at agreed milestones). It details what was supplied and when payment is due
• Receipt: proof of payment, issued after the customer has paid. It confirms the transaction is complete

In short, a quote comes first, then the invoice, and finally the receipt. Each one plays a role in a clear, professional transaction process.

Simplify your invoicing with Xero

Good invoicing practices help you maintain healthy cash flow, stay compliant with the ATO, and keep your customer relationships professional.

Xero makes invoicing straightforward. You can create and send invoices from anywhere, set up automated reminders for overdue payments, and let customers pay online directly from the invoice. Xero customers who use online invoice payments get paid up to twice as fast, helping you spend less time chasing payments and more time running your business. Get one month free.

FAQs on invoices

Here are answers to frequently asked questions about invoices.

What is the difference between a tax invoice and a regular invoice?

A tax invoice is required for GST-registered businesses and must include specific details like the GST amount and the words "tax invoice." A regular invoice is used by businesses not registered for GST and doesn't need to show GST information.

Do you need an ABN to send an invoice?

You don't legally need an ABN to send an invoice, but under current ATO rules, if you don't include one, the payer may be required to withhold tax at the top marginal rate from the payment. It's strongly recommended to have and display your ABN on all invoices.

What is e-invoicing?

E-invoicing is the electronic exchange of invoices between businesses through the Peppol network in a standardised digital format. It reduces manual data entry and processing errors compared to sending PDF or paper invoices.

What happens if you send an incorrect invoice?

If you've sent an invoice with an error, you should issue a credit note to cancel or adjust the original invoice, then send a corrected one. Don't simply alter the original invoice, as this can create compliance issues with your records.

Can you send an invoice before completing work?

Yes, you can invoice in advance or at agreed milestones for larger projects. This is common practice for deposits or progress payments, and it helps maintain steady cash flow throughout a project.