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Chapter 1 of 8

What is an invoice?


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What is an invoice?

An invoice is a request for payment. It lists the goods or services you’ve supplied to your customer, and what they owe you in return.

Your invoices are also tax documents. You’re required to keep copies to show what revenue you earned and any tax you might have collected on the sale.

Why are invoices so important?

Invoices are a request for payment, so it goes without saying that you need to get them right. If you make a mistake, a customer may refuse to pay, or they may pay you the wrong amount. That can cause a lot of embarrassment and frustration on both sides.

Invoices are also tax documents, so you may get into trouble if they don’t comply with tax office requirements.

What to put on an invoice

An invoice should identify the supplier, the buyer, and the goods or services that were exchanged. Here’s what to put on it:

  • your company name, address and the invoice number

  • your customer’s name and address

  • details of the goods or service you provided and the cost

  • instructions on how and when to pay

If you collected tax on the sale, then you also need to show how much. Learn more in our chapter on making an invoice.

Details for what goes on an invoice

Some of the details in an invoice stay the same in each one you send and can be set up in a template that you use each time. For the content that varies, you can create placeholders in your template.

The payment terms and methods of payment you offer may change occasionally. If they do change for a particular customer or job, you’ll need to remember to alter them.

Here's more detail about what goes into an invoice.

Invoice details

  • Logo: Your business logo if you have one.
  • Invoice title: A title that identifies this document as an invoice. 
  • Invoice number: A unique invoice number which distinguishes each invoice from all others.
  • Invoice date: The date the invoice is issued.

References

  • Purchase order number: The purchase order number if your customer has given you one. Otherwise the name of your contact person can be helpful to increase the chances of being paid promptly.
  • Customer number: Your customer number if you use them to identify and keep track of customers.
  • Tracking number: The tracking number for shipping if applicable.

Your business details

  • Name and address block: Your business name, address and contact details. Freelancers can use a personal name.
  • Contact person: The name, phone number and email address of the person to contact if the customer has queries about the invoice.
  • Tax or business number: Your tax number if applicable.

Customer details

  • Name and address block: The customer’s name and address to send the invoice to. If it’s an organization, check their legal name as it could be different from the trading name you’re familiar with.
  • Shipping address: The name and address to send the goods to. May be optional if it’s the same as the invoicing address.

List of goods and services

  • Description: A brief description of each of the products or services you supplied.
  • Quantity: The number of items you supplied or the number of hours you’re charging for.
  • Unit price: The price per item or per hour, or the fixed price you agreed upfront.
  • Price: The price for that item or service, obtained by multiplying the unit price by the quantity.

Amount owed

  • Subtotal: The total cost before tax of all the goods and service listed. Make sure you apply any discounts you’ve offered and include any shipping charges.
  • Tax: The amount of tax that applies.
  • Total: What the customer owes including any discount, the total tax (when applicable) and any shipping charge.

Payment terms

  • Deposit required: The amount of any deposit required.
  • Due date: How many days (from the invoice date) the customer has to pay and the date when payment is due.
  • Discount or late fees: The amount of any on-time discounts or late fees.
  • How to pay: The methods of payment you offer, eg, internet banking, credit card, PayPal, cash, cheque. Include your bank account number or a link so customers can pay online.

Payment slip

  • Customer name and address block: The customer’s name and address to send the invoice to.
  • Invoice and payment details: Details you’ll need to identify who the payment came from and what it’s for including the: invoice number, due date, amount due and amount paid.

Payment terms example

Write your payment terms in plain English on your invoice and make it clear how you prefer to get paid. Here’s an example:

invoice payment term example

Extra tips for B2B invoices

  • Check you’ve used the legal name of the business you’re billing. This may be different from the trading name that you’re familiar with.

  • Don’t automatically send the invoice to the person who placed the order or hired you. Ask if there is an accounts payable department.

  • While you’re at it, ask if they have a purchase order number for you to include on the invoice. If not, add the name of your main contact so they can approve the invoice.

Paco Nicole

"Create an email address specifically for dealing with invoicing and accounting. For example, set up accounts@yourcompany.com and send all your invoices from that email. It has a psychological impact when it comes to asking to be paid."

Paco Nicole, The Hell Yeah Group, Xero partner

Different types of invoice

Now that you know what a basic invoice is, let’s look at some of the different types out there:

  • Sales invoice – if you send an invoice, then it’s a sales invoice (if you receive it, it’s a purchase invoice).

  • Interim invoice – if you require progress payments on a big piece of work, you could send one or more interim invoices.

  • Final invoice – the last in a series of interim invoices, a final invoice signals that the work is complete and that no other invoices will follow.

  • Recurring invoice – if you charge your customer the same amount every time, you can just send a recurring invoice. These are great for subscriptions or leases.

  • Pro forma invoice – these are often used to show the price of goods so that an importer can calculate the customs costs before buying. They are not a record of a sale.

  • Commercial invoice – these are also used to calculate customs on imported goods but in this case the transaction has taken place and the sale is official.

  • Credit memo or credit note – these reverse a charge from a previous invoice. They’re issued when goods are returned or when a customer was overcharged.

How invoicing works – from start to finish

There’s more to invoicing than you might think. It’s a process that begins when you take on a job and only finishes when the money comes in the door. There are quite a few steps along the way.

No one wants to be stuck in the office doing accounts, so automating as many steps as you can really helps.  

Journey of an invoice

Journey of an invoice

Chapter 2: How to make an invoice

You’ve done the work; now it’s payment time. Here’s where your invoice plays a key role. It pulls together precise details from several places, and is a vital piece of work.

Read chapter 2