1. What is an invoice?
An invoice is a request for payment. It lists the goods or services you’ve supplied, and shows what your customer owes in return.
Your invoices are also tax documents. You’re required to keep copies to show what revenue you earned and – if you’re GST registered – evidence of the tax you have collected for the government.
2. 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.
- 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 they’re not a legal record of a sale. They’re usually used as price quotes, and to identify the value of items in a shipment. These are typically used to calculate the customs 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. They’re issued when goods are returned or when a customer is overcharged.
3. 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, check out our guide on how to make an invoice.
4. When does an invoice get paid?
In theory, an invoice gets paid when you say it’s due. In reality, about half will be late. Finances can get really tight while you’re waiting. To keep those cash droughts to a minimum:
- give customers less time to pay (just 7 days is getting more common)
- get payment terms signed off before supplying anything
- if the work’s done, send the invoice – don’t wait till the end of the month
- automate your invoicing process with online invoicing and eInvoicing through accounting software that is compatible with the Peppol network
- make sure you know which invoices have been paid and which haven’t and follow up overdue accounts immediately
5. What is invoice accounting?
Most invoices get paid. Some – hopefully very few – don't. In either case, there are credits and debits to enter into your business accounts. A bookkeeper or accountant can help you get this right. And if you send invoices on accounting software, a lot of the book entries are done automatically.
6. What is invoice reconciliation?
Invoice reconciliation tells you which invoices have been paid and which haven’t. You do it by checking bank deposits for customer payments, and matching those payments to specific invoices. When an invoice is settled, you take it off your watchlist.
If an unpaid invoice goes past due, you should follow up the customer to chase payment. Invoice reconciliation can be painstaking but, as with invoice accounting, you can automate the process.
7. Are invoicing and accounts receivable the same thing?
Yes, invoicing and accounts receivable are essentially the same. They’re all about keeping track of what you’re owed. Some people think of invoicing simply as sending bills, but it’s much more than that. It’s a process that begins when you agree payment terms with a customer, and only finishes when they pay you. There can be a lot of steps along the way.
More invoicing questions?
Simply put, invoicing is a request for payment. But that doesn’t mean you’ll get the money promptly. There’s a lot you can do to improve the success of your invoicing. Check out our invoicing guide for more tips and tricks.
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.
Download the free invoice template
Fill in the form to get a free invoice template as an editable PDF, with how-to guide. There’s a version for GST and non-GST businesses.