Invoicing explained: invoice basics, types and terms

Published Wednesday 15 April 2026

Table of contents

• What is an invoice?
• What are the different types of invoice?
• What to put on an invoice
• When does an invoice get paid?
• What is invoice accounting?
• What is invoice reconciliation?
• Are invoicing and accounts receivable the same thing?
• Simplify your invoicing and get paid faster
• FAQs on invoicing

Key takeaways

• Include all essential details on every invoice such as your business information, unique invoice number, itemised costs, payment terms, and due dates to ensure prompt payment and maintain accurate records.
• Set shorter payment terms of seven days and send invoices immediately after completing work rather than waiting until month-end to improve your cash flow and reduce late payments.
• Use accounting software to automate invoice tracking, payment reconciliation, and record-keeping, which saves time and helps you follow up on overdue accounts more effectively.
• Choose the right invoice type for your situation, whether it's recurring invoices for subscription services, interim invoices for ongoing projects, or credit notes for refunds and adjustments.

What is an invoice?

An invoice is a formal request for payment that lists the goods or services you've supplied and shows what your customer owes.

Invoices serve two key purposes:

• Payment request: tells your customer exactly what they owe and when to pay
• Tax documentation: provides records of revenue earned and any sales tax collected for government compliance

What are the different types of invoice?

Invoice types vary based on when you send them and what they're for. Common types include:

• Sales invoice: a bill you send to customers for goods or services provided
• Purchase invoice: a bill you receive from suppliers (the opposite of a sales invoice)
• Past due invoice: a resent invoice marked as overdue when payment is late
• Interim invoice: a progress payment request issued during ongoing work, typically monthly
• Final invoice: the last invoice in a series, signalling that work is complete
• Recurring invoice: an automatic invoice for the same amount each billing cycle, ideal for subscriptions or leases
• Pro forma invoice: a preliminary quote showing estimated costs before a sale is finalised
• Commercial invoice: a legally binding document with fixed prices used in international trade
• Credit note: a document that reverses or reduces a charge from a previous invoice

What to put on an invoice

Creating a complete invoice helps ensure you get paid on time and maintain accurate records.

Every invoice should include these essential elements:

• Your business details: name, address, and contact information
• Customer details: name and billing address
• Invoice number: a unique code to track and reference the invoice
• Invoice date: when you issued the invoice
• Description of goods or services: what you provided
• Amounts owed: itemised costs, taxes, and total due
• Payment terms: when payment is due and accepted payment methods

For step-by-step guidance, see our guide on how to make an invoice.

When does an invoice get paid?

Understanding payment timing helps you manage cash flow effectively.

Invoices are due on the date you specify in your payment terms. However, late payments are a significant issue, with research showing that 47% of small businesses have invoices overdue by more than 30 days.

To get paid faster:

• Set shorter payment terms: seven-day payment windows are becoming standard
• Confirm terms upfront: get payment terms agreed before starting work
• Send invoices immediately: don't wait until month-end once work is complete
• Track payment status: know which invoices are paid and follow up on overdue accounts straight away

For more tips, see our guide on how to set up an awesome invoicing system.

What is invoice accounting?

Invoice accounting is how you record invoice transactions in your business accounts. Each invoice creates credits and debits that track what you're owed and what you've received.

You can manage invoice accounting by:

• Working with a bookkeeper or accountant: they ensure entries are recorded correctly
• Using accounting software: Xero and similar tools automate most book entries when you send invoices on accounting software

What is invoice reconciliation?

Invoice reconciliation is when you match customer payments to specific invoices to confirm what's been paid.

Here's how it works:

• Check bank deposits: review incoming payments from customers
• Match to invoices: link each payment to the correct invoice
• Update records: mark paid invoices as settled and remove them from your outstanding list
• Follow up on overdue invoices: chase payment on any invoices past their due date

Reconciliation can be time-consuming manually, but accounting software automates how you match payments.

Are invoicing and accounts receivable the same thing?

This is a common question for small business owners.

Yes, invoicing and accounts receivable are closely related. Both focus on tracking what customers owe you.

Invoicing is more than just sending bills. It's a complete process that includes:

• Agreeing payment terms with your customer
• Sending the invoice for goods or services provided
• Tracking payment status until the invoice is settled
• Following up on any overdue amounts

Accounts receivable is the accounting term for all unpaid invoices your business is owed. This is a significant figure for many businesses. Over half of small businesses report they are owed money, averaging $17.5K per business.

Simplify your invoicing and get paid faster

Invoicing is how you request payment for your work. Getting it right helps you get paid faster and keeps your cash flow healthy, which is critical since 50% reported issues with cash flow when dealing with a high volume of overdue invoices.

Ready to simplify your invoicing? Get one month free of Xero and see how automated invoicing saves you time while helping you get paid sooner.

FAQs on invoicing

Here are answers to common invoicing questions.

What's the difference between an invoice and a receipt?

An invoice requests payment before or after you provide goods or services. A receipt confirms that payment has been received.

How long should I give customers to pay an invoice?

Payment terms vary, but seven to 30 days is standard. Shorter terms like seven days can help improve your cash flow.

Do I need invoicing software?

You can create invoices in a word processor or spreadsheet, but accounting software automatically tracks payments, reconciles accounts, and keeps records, which saves you time. Businesses heavily affected by late payments are less likely to adopt accounting software (36%) compared to those less affected (56%).

What should I do if a customer doesn't pay an invoice?

Follow up promptly when an invoice becomes overdue. Send a reminder, then a formal past-due notice. If the customer still doesn't pay, you may need to consider a collections process or seek legal advice.