What is an invoice?

An invoice is a document that requests payment from a customer for goods or services you've provided. It lists what was sold, how much is owed, and when payment is due. Some people call it a bill, though invoices usually include more detailed transaction information.

A standard invoice includes:

Quantity: the number of goods sold or hours of service provided
Rate: the price per unit or hourly charge
Total cost: the full amount owed, including any taxes
Description: a clear explanation of what the customer is paying for
Payment terms: when and how the customer should pay

An invoice differs from a quote. A quote provides an estimated cost before work begins. An invoice shows the actual cost after you've delivered goods or completed a service.

The same invoice has different names depending on who's using it. For you as the seller, it's a sales invoice. For your customer, it's a purchase invoice.

Invoices also work as payment reminders. Larger companies dealing with many suppliers can lose track of what they owe. Your invoice tells them exactly when to pay you.

Payment terms specify your payment deadline. Common terms include 7 days, 14 days, or 30 days after the invoice date. You'll often see this written as "Net 14" or "Net 30".

Accurate, clear, and timely invoices support healthy cash flow: the sooner you send an invoice, the sooner you can expect payment.

What to include on an invoice

Every invoice needs certain essential details to be complete and professional. Customers who are GST/HST registrants need specific information to support their claims for input tax credits. Missing information can delay payment or create confusion for your customer.

Include these elements on every invoice:

Your business details: business name, address, phone number, and email
Customer details: their name, company name (if applicable), and address
Invoice number: a unique identifier for tracking and record-keeping
Invoice date: when you issued the invoice
Payment due date: when you expect payment
Itemized list: each product or service with a clear description
Quantities and rates: how many units and the price per unit
Subtotal and taxes: the amount before and after applicable taxes
Total amount due: the final amount your customer owes
Payment methods: how customers can pay, such as bank transfer, credit card, or cheque

Clear, detailed invoices reduce back-and-forth questions and help you get paid on time.

Why you need to send invoices

Invoices do more than request payment. They protect your business, help you track money owed, and keep your financial records organized.

Professional payment requests

An invoice formalizes your transaction and sets clear expectations. It tells your customer exactly what they're paying for, how much they owe, and when payment is due.

Legal protection

Invoices serve as legal records of your business transactions. In Canada, if your customers are GST/HST registrants, you must give them enough information on the invoice to support their input tax credit claims. If a dispute arises about what was agreed, your invoice provides documented proof of the goods or services provided and the amount owed.

Payment tracking and cash flow

Invoices help you see who owes you money and when payments are due. Seeing this clearly is essential for managing your cash flow and following up on late payments before they become a problem.

Accurate record-keeping

At tax time, your invoices document what you need. The Canada Revenue Agency notes that the invoice date will determine when you need to report and remit GST/HST, creating a clear trail of your business income for bookkeeping and tax compliance.

Types of invoices

Different situations call for different invoice types. Here are the ones you're most likely to use.

Standard invoice

The most common type, sent after you deliver goods or complete a service. It includes all the essential details: what was provided, the amount owed, and payment terms.

Recurring invoice

You use this for ongoing services you bill at regular intervals, like monthly retainers or subscriptions. Accounting software can automate these, creating them for you each time.

Proforma invoice

You send this preliminary invoice before work begins or before you ship goods. You commonly use it for quotes, customs purposes, or when you require a deposit. Learn more about proforma invoices.

Credit invoice

Some call this a credit note. It adjusts or cancels a previous invoice. You'd use it for refunds, returns, or to correct billing errors.

Interim invoice

You use this for large projects you bill in stages. Instead of waiting until the project is complete, you invoice for work completed at agreed milestones.

The right invoice type depends on your business model and what works best for your customers.

How to create an invoice

Creating a professional invoice takes just a few minutes when you know what to include. Follow these steps.

Choose your method: use an invoice template, spreadsheet, or accounting software.
Add your business name, logo, and contact details.
Include your customer's name and contact information.
Assign a unique invoice number for tracking.
Add the invoice date and payment due date.
List each product or service with a clear description.
Include quantities, rates, and line totals.
Calculate the subtotal, add any applicable taxes, and show the total due.
Specify your payment terms and accepted payment methods.
Review for accuracy before sending.

Accounting software like Xero can automate much of this process. You can create branded invoice templates, set up recurring invoices, and send them directly from your phone or computer.

Invoice requirements in Canada

If you're registered for GST/HST and your customer is also a registrant, your invoice needs specific details so they can claim input tax credits. The information required increases with the total amount of the sale.

Show the GST/HST clearly on the invoice. State the rate that applies and whether tax is included in the price or added separately, so your customer can see exactly what they're paying.

The invoice date also matters for your own reporting. It helps determine when you report and remit the GST/HST you charge, so accurate dates keep your tax records in order.

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Simplify invoicing with Xero

Managing invoices can be quick and simple. With cloud-based accounting software, you can create professional invoices in minutes, track payments automatically, and send reminders when payments are due.

Streamline your invoicing today and see how Xero works for your business: get one month free.

FAQs on invoices

Here are answers to some frequently asked questions about invoices.

Is an invoice a receipt?

No. An invoice requests payment before you've been paid, while a receipt confirms that payment has been received.

Is an invoice the same as a bill?

They're closely related, and the difference is mostly about who's speaking: what you send as an invoice, your customer often records as a bill to pay. Invoices tend to carry more detail, such as an invoice number and payment terms.

What does net 30 mean on an invoice?

Net 30 means payment is due within 30 days of the invoice date. You can adjust this to suit your business, using shorter terms like Net 14 to bring payment in sooner.

Disclaimer

This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.

When should I send an invoice?

Send invoices promptly after delivering goods or completing a service, invoicing when you ship products or as soon as the work is done. This matters because, for GST/HST purposes, the invoice date determines when you must report and remit the tax you charge.

What is an invoice?

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