Published Monday 22 June 2026

Table of contents

• What is an invoice?
• Invoice vs quote vs receipt
• What to include on an invoice
• Types of invoices
• UK VAT invoice requirements
• Common invoice payment terms
• How to create and send an invoice
• How to handle late and overdue invoices
• Simplify your invoicing with Xero
• FAQs on invoices

Key takeaways

• An invoice is a formal payment request that also serves as a legal record of a transaction between your business and a customer
• UK invoices must include specific details such as a unique invoice number, your business name and address, a description of goods or services, and the amount due
• If you're registered for Value Added Tax (VAT), your invoices need to meet additional requirements depending on the transaction value
• Setting clear payment terms, sending invoices promptly and following up on overdue payments helps you maintain healthy cash flow

What is an invoice?

An invoice is a document you send to a customer requesting payment for goods or services you've provided. It's sometimes called a bill, though in business, "invoice" is the standard term used by the seller, while "bill" is what the buyer receives.

Beyond requesting payment, an invoice acts as a legal record of a transaction. It details what was sold, how much is owed and when payment is due. Keeping accurate invoices is essential for tracking income, managing cash flow and meeting your tax obligations.

Invoices are used by businesses of all sizes, from sole traders billing a single client to limited companies managing hundreds of transactions a month. Regardless of your setup, timely and accurate invoicing is one of the most important parts of getting paid.

According to Xero Small Business Insights, UK small businesses wait an average of 29 days to receive payment after issuing an invoice. Invoices are paid an average of 8.2 days past their due date, based on data covering 440,000 UK small businesses (March Quarter 2026). That's why getting your invoicing right from the start matters so much.

Invoice vs quote vs receipt

Invoices, quotes and receipts each play a different role in a business transaction. Understanding the distinction helps you use the right document at the right time.

A quote (also called a quotation or estimate) is sent before any work begins. It outlines the expected cost of goods or services and gives your customer a chance to agree to the price. A quote isn't a request for payment; it's a proposal.

An invoice comes after the goods or services have been delivered. It formally requests payment and includes all the details your customer needs to pay you, such as the amount owed, payment terms and your bank details.

A receipt confirms that payment has been made. You issue a receipt after your customer pays the invoice. It serves as proof of payment for both parties.

A credit note is slightly different. You send a credit note when you need to reduce or cancel an amount on an invoice you've already issued, for example if there's been an overcharge or a returned item.

What to include on an invoice

A complete invoice makes it easier for your customer to pay promptly and helps you stay compliant with UK tax rules. Here's what every invoice should contain.

The following details apply whether you're a sole trader, freelancer or limited company:

• A unique invoice number: use a sequential numbering system so each invoice is easy to identify and track
• The invoice date: the date you issue the invoice
• The supply date: the date the goods or services were provided (this can differ from the invoice date)
• Your business name and contact details, including your address
• Your customer's name and address
• A clear description of the goods or services provided
• The quantity and unit price for each item or service
• The total amount due, including any VAT if applicable
• Your payment terms, for example "Net 30" or "due on receipt"
• Accepted payment methods and your bank or payment details
• Your VAT registration number, if you're VAT registered

If you run a limited company, you also need to include your company registration number and registered office address. These are legal requirements under the Companies Act 2006.

Sole traders don't need a company registration number, but should still include their full name (or trading name) and business address. If you're VAT registered, the same VAT rules apply regardless of your business structure.

Types of invoices

Not every transaction calls for the same type of invoice. Here are the most common types you're likely to use as a small business owner.

Standard invoice

This is the most common type. You send a standard invoice after delivering goods or completing a service. It includes all the usual details: your business information, a description of what was provided, the amount due and payment terms.

Proforma invoice

A proforma invoice is sent before the work is done or goods are delivered. It's similar to a quote but formatted like an invoice. It gives your customer a preview of what the final invoice will look like, including estimated costs. A proforma invoice isn't a demand for payment.

Recurring invoice

If you provide ongoing services with regular billing, a recurring invoice saves time. It's issued automatically at set intervals, for example monthly or quarterly, for the same amount. Accounting software like Xero can automate recurring invoices so you don't have to create them manually each time.

Credit note

A credit note adjusts or cancels part (or all) of a previously issued invoice. You'd use one if you overcharged a customer, they returned goods or the original invoice contained an error. The credit note references the original invoice number so both records stay linked.

VAT invoice

If you're VAT registered, you'll need to issue VAT invoices for most sales to other VAT-registered businesses. There are 3 types: full, modified and simplified. The section below covers these in detail.

UK VAT invoice requirements

If your business is registered for VAT, your invoices must meet specific requirements set by HMRC. The type of VAT invoice you need to issue depends on the value of the transaction.

Full VAT invoice

A full VAT invoice is required for most business-to-business sales. In addition to the standard invoice details, it must include your VAT registration number, the VAT rate applied to each item, the total amount excluding VAT, the total VAT charged and the total amount including VAT.

Simplified VAT invoice

You can issue a simplified VAT invoice for sales of £250 or less (including VAT). It needs fewer details: your business name, address and VAT number, the date, a description of the goods or services, the total amount including VAT and the VAT rate applied.

Modified VAT invoice

A modified VAT invoice is used for retail sales over £250 where your customer is VAT registered. It includes the same information as a full VAT invoice but shows VAT-inclusive prices rather than listing VAT separately per line item.

The current VAT registration threshold is £90,000 in taxable turnover over a rolling 12-month period. If your turnover exceeds this, you must register for VAT and start issuing VAT invoices.

Under Making Tax Digital (MTD) for VAT, VAT-registered businesses must keep digital records and submit VAT returns using compatible software. Xero is MTD-compatible, which means you can manage your VAT invoices and submissions in one place.

Common invoice payment terms

Payment terms tell your customer when and how to pay. Clear terms reduce confusion and help you get paid on time. Here are the most widely used invoice payment terms for UK small businesses.

• Net 30: payment is due within 30 days of the invoice date. This is one of the most common terms for business-to-business transactions
• Net 14 or Net 7: shorter payment windows, useful when you need faster cash flow
• Payment in advance (PIA): the customer pays before you deliver goods or services. Common for new clients or large orders
• Due on receipt: payment is expected as soon as the customer receives the invoice
• End of month (EOM): payment is due by the last day of the month in which the invoice was issued
• Month following invoice (MFI): payment is due by the end of the month after the invoice date

You can also offer early payment discounts to encourage faster payment. For example, "2/10 Net 30" means the customer gets a 2% discount if they pay within 10 days; otherwise, the full amount is due in 30 days.

For larger projects, stage payments (also called progress payments) let you invoice at agreed milestones rather than waiting until the end. This spreads your income across the project and reduces the risk of a large unpaid invoice.

Choose terms that suit your cash flow needs and your industry norms. Whatever you decide, make sure your payment terms are clearly stated on every invoice.

How to create and send an invoice

Creating a clear, professional invoice doesn't have to be complicated. Follow these steps to get it right every time.

1. Choose your invoicing method

You can create invoices using a word processor, invoice template or dedicated invoicing software. Invoicing software like Xero saves time by auto-filling customer details, calculating totals and tracking payment status for you.

2. Fill in the required details

Include all the information listed in the "what to include on an invoice" section above: your business details, your customer's details, a unique invoice number, the invoice and supply dates, a clear description of goods or services, amounts and payment terms.

3. Double-check before sending

Review your invoice for accuracy. Check the amounts, VAT calculations (if applicable), payment details and spelling of your customer's name. Small errors can delay payment or cause disputes.

4. Send the invoice promptly

Send your invoice as soon as the goods or services have been delivered. The sooner you invoice, the sooner the payment clock starts. Email is the fastest and most reliable method for most small businesses. For a more detailed walkthrough, see the guide on how to send an invoice.

5. Keep a record

Save a copy of every invoice you send. You're legally required to keep invoicing records for at least 6 years in the UK. Using accounting software makes this automatic, since every invoice is stored and searchable in one place.

When sending by email, include a brief, professional message referencing the invoice number and the amount due. Attach the invoice as a PDF so the formatting stays consistent regardless of what device your customer uses.

Setting up automatic invoice reminders through your accounting software means you don't have to manually chase every payment. Xero sends reminders on your behalf when an invoice is approaching its due date or becomes overdue.

How to handle late and overdue invoices

Late payments are one of the biggest challenges for UK small businesses. Having a clear process for chasing overdue invoices helps protect your cash flow.

Send a polite reminder

Start with a friendly reminder shortly after the payment due date. A brief email referencing the invoice number, amount and original due date is usually enough to prompt payment. Many late payments are simply oversight, not refusal.

Follow up with a formal notice

If your initial reminder goes unanswered, send a more formal follow-up. State the amount overdue, the original due date and a new deadline for payment. Keep the tone professional and factual.

Charge interest on late payments

Under the Late Payment of Commercial Debts (Interest) Act 1998, you have the legal right to charge interest on overdue invoices from other businesses. The statutory rate is 8% plus the Bank of England base rate. You can also claim a fixed compensation amount: £40 for debts up to £999.99, £70 for debts between £1,000 and £9,999.99, and £100 for debts of £10,000 or more.

Consider a statutory demand or court action

For persistent non-payment, a statutory demand is a formal written request that gives the debtor 21 days to pay. If payment still isn't made, you can take the matter to small claims court (for debts under £10,000) or seek further legal advice for larger amounts. These are last-resort options, but knowing your rights can help you take action with confidence.

Simplify your invoicing with Xero

Good invoicing habits are the foundation of healthy cash flow. From creating clear, compliant invoices to chasing overdue payments, every step matters when you're running a small business.

Xero makes invoicing straightforward. You can create and send professional invoices, set up automatic reminders and accept online payments, all in one place. Xero customers who use online invoice payments get paid up to twice as fast. Get one month free.

FAQs on invoices

Here are answers to frequently asked questions about invoices.

Is an invoice the same as a receipt?

No. An invoice is a request for payment sent before the customer pays. A receipt is issued after payment has been made, confirming the transaction is complete.

Do I need to send an invoice if I'm not VAT registered?

You don't have a legal obligation to issue invoices if you're not VAT registered. However, sending invoices is still good practice because they provide a clear record of what's owed and when payment is due.

What is the difference between a proforma invoice and a standard invoice?

A proforma invoice is sent before goods or services are delivered, giving the customer an estimated cost. A standard invoice is sent after delivery and is a formal request for payment.

How long should I keep copies of my invoices?

In the UK, you must keep invoicing records for at least 6 years. If you're VAT registered, HMRC requires you to keep VAT records for 6 years as well.

What does net 30 mean on an invoice?

Net 30 means the total amount is due within 30 days of the invoice date. It's one of the most common payment terms for business-to-business transactions in the UK.

Can I charge interest on a late invoice?

Yes. Under the Late Payment of Commercial Debts (Interest) Act 1998, you can charge interest at 8% plus the Bank of England base rate on overdue business invoices. You can also claim a fixed compensation fee.