Invoice
Learn what an invoice is, what to include, the main types, and how to create and send one.
Published Thursday 6 August 2026
Table of contents
Key takeaways
- An invoice is a document that requests payment for goods or services, showing what is owed, the amount due, and payment terms.
- Clear invoices with complete details and payment terms help your business maintain healthy cash flow and keep accurate financial records.
- Invoices differ from bills and receipts: an invoice requests payment, a bill is what the buyer calls the invoice they receive, and a receipt confirms payment.
- Sending invoices promptly and tracking them helps you collect payments on time and manage your accounts receivable.
What is an invoice?
An invoice is a document a seller gives a buyer that charges for goods or services provided, showing what is owed and how and when to pay.
Invoices formally request payment and create a record of the transaction for both parties. For small businesses, invoices are essential for tracking sales, managing cash flow, and maintaining accurate financial records for tax purposes.
What is an invoice used for?
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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.
Invoices perform several important functions for your business. They formally request payment from customers, specifying the amount owed and when payment is due. This helps protect your cash flow by reminding customers of their obligations and setting clear expectations with a payment term, such as Net 14 days.
Beyond requesting payment, invoices create a paper trail that supports your record keeping. They document each transaction for your accounts receivable, making it easier to track outstanding payments and reconcile your books. Accurate invoices also help you stay compliant with tax requirements by providing evidence of income earned.
According to the Atradius Payment Practices Barometer for Hong Kong, overdue invoices affect 49% of the value of business-to-business sales made on credit, so an accurate invoice with clear payment terms helps you get paid on time.
What to include on an invoice
A complete invoice should contain all the information your customer needs to process and pay it. Missing details can cause delays and confusion.
- your business name, address, and contact details
- the customer's name and address
- a unique invoice number for tracking
- the invoice date
- a clear description of the goods or services provided
- quantity and rate for each item
- the subtotal and total amount due
- payment terms and due date
- accepted payment methods
Invoice vs bill vs receipt
These terms are often used interchangeably, but they have distinct meanings depending on your perspective in the transaction.
- Invoice: a request for payment issued by the seller to the buyer before payment is made
- Bill: what the buyer calls the invoice they receive, showing an amount they owe in their accounts payable
- Receipt: proof of payment issued by the seller after the buyer has paid
The same document can have different names depending on who is looking at it. To the customer receiving it, an invoice is a purchase invoice because it records a purchase they made. To the supplier who sent it, the same document is a sales invoice because it records a sale.
Types of invoices
Businesses use different invoice formats depending on the nature of the transaction and when payment is required.
- Standard invoice: the most common type, issued after goods or services are delivered to request payment
- Proforma invoice: a preliminary invoice sent before delivery to confirm what will be provided and at what price
- Recurring invoice: automatically generated at regular intervals for ongoing services or subscriptions
- Interim invoice: issued for partial payment during a longer project, such as construction work
- Credit note: issued to reduce the amount owed, often used to correct errors or process refunds
- Overdue invoice: a past due invoice where payment has not been received by the due date
How to create and send an invoice
Creating professional invoices helps you collect payments efficiently and maintain accurate records. Follow these steps to send an invoice that gets paid.
- Gather the customer's contact details and information about the job or sale.
- Add a unique invoice number and the current date.
- Itemise the goods or services with quantities and prices for each line.
- Set clear payment terms and specify the due date.
- Include your accepted payment methods so customers know how to pay.
- Send the invoice promptly while the work is fresh in the customer's mind.
- Track the invoice and follow up if payment becomes overdue.
Simplify invoicing with Xero
Xero online invoicing makes it easy to create professional invoices, send them to customers, and track when they're viewed and paid. Set up automatic payment reminders to follow up on outstanding invoices without manual effort. You can offer customers multiple ways to pay directly from the invoice, helping you maintain healthier cash flow. Sign up today and get one month free.
FAQs on invoices
Here are answers to common questions about invoices and invoicing practices.
Is an invoice a legal document?
An invoice is a commercial document that provides evidence of a transaction, but it is not a contract on its own. However, when combined with a purchase order or agreement, invoices can support legal claims for payment owed.
Does receiving an invoice mean I have to pay immediately?
Not necessarily. The invoice should state the payment terms and due date. Common terms include Net 14 or Net 30, meaning payment is due within 14 or 30 days of the invoice date.
When should I send an invoice?
Send invoices as soon as the goods are delivered or services are completed. Prompt invoicing keeps the transaction fresh in your customer's mind and helps you get paid sooner.
What is the difference between an invoice and a purchase order?
A purchase order is created by the buyer to request goods or services, while an invoice is created by the seller to request payment after delivery. The purchase order comes first; the invoice follows.