Invoice Basics: What an Invoice Is, How to Create One

Published Thursday 8 January 2026

Table of contents

• What is an invoice?
• What are the different types of invoice?
• What to put on an invoice
• How do you create an invoice?
• When does an invoice get paid?
• What is invoice accounting?
• What is invoice reconciliation?
• Are invoicing and accounts receivable the same thing?
• Get your invoicing right from the start
• FAQs on invoicing

Key takeaways

• Create invoices with essential information including your business details, customer information, itemized services with quantities and rates, GST (if registered), payment terms, and a unique invoice number to ensure legal compliance and clear payment expectations.
• Implement shorter payment terms of 7 days instead of 30 days and send invoices immediately upon work completion to improve cash flow, as approximately half of all invoices are paid late.
• Utilize accounting software to automate invoice creation, tracking, and reconciliation processes, which saves time, reduces errors, and provides better visibility into outstanding payments compared to manual methods.
• Follow up actively on overdue invoices by tracking unpaid accounts and contacting customers immediately when payments become past due, rather than waiting for customers to pay voluntarily.

What is an invoice?

An invoice is a formal document that requests payment for goods or services you've provided to customers. It shows exactly what you delivered and how much the customer owes.

Invoices serve as essential tax records for your business, which are critical for meeting key deadlines. You must keep copies to prove your revenue and, if you're GST registered, to show the tax you've collected for the government.

What are the different types of invoice?

Invoices come in many varieties, each with their own name. Here are some of the more common.

• Sales invoice: If you send an invoice, then it's a sales invoice (if you receive it, it's a purchase invoice).
• Tax invoice: Invoices that include GST may also be called tax invoices. GST-registered businesses send tax invoices, and for supplies over $200, this information must be provided within 28 days of a request from another GST-registered party.
• Past due invoice: When an invoice hasn't been paid, some businesses will resend it with an overdue stamp on it.
• Interim invoice: If you require progress payments on a big piece of work, you could send an interim invoice. They're usually issued monthly, and charge for the work done during that period.
• 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: A pro forma invoice shows items and costs, but it’s not a legal record of a sale. People usually use pro forma invoices as price quotes and to show the value of items in a shipment. Customs agencies often use them to calculate duties on imports before a deal is finalised.
• Commercial invoice: While the prices on a pro forma invoice can change at any time, a commercial invoice is legally binding. If you issue one of these, you can't change the price until the invoice has expired.
• Credit memo or credit note: A credit note reverses a charge from a previous invoice. You issue a credit note when goods are returned or when you’ve overcharged a customer.

What to put on an invoice

An invoice needs to identify the buyer and seller, the goods or services they exchanged, and the costs charged. It should also carry the date of issue, and a number (or code) that distinguishes it from all your other sales invoices. For more detail on what to put on an invoice, see the guide on how to make an invoice.

How do you create an invoice?

Creating an invoice involves gathering customer details, listing what you've provided, and setting clear payment terms. You can create invoices manually or use software to automate the process.

Essential steps for invoice creation:

1. Gather information: Customer name, contact details, and what you've supplied
2. Add your details: Business name, contact information, and invoice number
3. List items: Description, quantity, rate, and total for each item or service
4. Include totals: Subtotal, GST (if applicable), and final amount due
5. Set payment terms: Due date and accepted payment methods
6. Send promptly: Email or post the invoice as soon as work is complete

Choose your method:Use accounting software for automated invoicing or create invoices manually using templates. Software saves time and reduces errors while keeping better records.

When does an invoice get paid?

Invoice payment timing depends on your payment terms, but about half of invoices are paid late. This creates cash flow challenges that you can minimise with these strategies:

• Shorter payment terms: Give customers just 7 days to pay instead of 30
• Clear agreements: Get payment terms signed before supplying goods or services
• Immediate invoicing: Send invoices as soon as work is complete
• Automated systems: Use online invoicing and eInvoicing through accounting software
• Active follow-up: Track which invoices are unpaid and chase overdue accounts immediately

For more tips, see the guide on how to set up an effective invoicing system.

What is invoice accounting?

Invoice accounting is the process of recording invoice transactions in your business books, which often follows global frameworks like the IFRS Accounting Standards that are used in 160 jurisdictions. This includes tracking payments received and managing unpaid invoices.

What is invoice reconciliation?

Invoice reconciliation is the process of matching customer payments to specific invoices to track what's been paid and what's still outstanding.

• Match payments: Check bank deposits against individual invoices
• Update records: Remove paid invoices from your outstanding list
• Follow up: Contact customers when invoices go past due
• Automate the process: Use accounting software to handle reconciliation automatically and save time

Are invoicing and accounts receivable the same thing?

Invoicing and accounts receivable are essentially the same thing: both track money customers owe you.

• More than billing: Invoicing isn't just sending bills, it's managing the entire payment process
• Complete cycle: The process starts when you agree payment terms and ends when customers pay
• Multiple steps: Includes creating invoices, sending them, tracking payments, and following up on overdue accounts

Get your invoicing right from the start

Getting invoicing right from the start saves time, improves cash flow, and keeps your business compliant. The key is using systems that automate routine tasks while giving you clear visibility into what's owed.

Smart invoicing software does the hard work, from creating professional invoices to tracking payments and chasing overdue accounts. This frees you to focus on growing your business rather than managing paperwork.

Ready to streamline your invoicing process? Try Xero for free and see how automated invoicing can help you stay on top of cash flow.

FAQs on invoicing

Here are answers to common questions about invoicing for small businesses.

Is an invoice a bill or receipt?

An invoice is a request for payment sent before you receive money, while a receipt is proof of payment given after money is received.

How do you make an invoice in NZ?

Include your business details, customer information, itemized services, GST (if registered), payment terms, and a unique invoice number. Use accounting software or templates to ensure you meet legal requirements.

What happens if an invoice isn't paid?

Follow up with the customer, send payment reminders, and consider charging late fees if specified in your terms. Persistent non-payment may require debt collection or legal action.

Can you send invoices without being GST registered?

Yes, you can invoice without GST registration, but you cannot charge GST to customers. Only GST-registered businesses can add GST to their invoices.