Invoice: What It Is, How to Create One and Get Paid Faster

Published Thursday 12 February 2026

Table of contents

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

Key takeaways

• Include all essential details on every invoice: your business information, customer details, unique invoice number, itemised services with pricing, payment terms, and tax information to ensure legal compliance and prompt payment.
• Set shorter payment terms like seven days instead of 30 days and send invoices immediately after completing work to improve your cash flow and reduce late payments.
• Use accounting software or professional templates to automate your invoicing process, which streamlines creation, tracking, and payment reminders while reducing manual errors.
• Follow up promptly on overdue invoices with polite reminders, and track all unpaid invoices daily to maintain healthy cash flow and professional customer relationships.

What is an invoice?

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

Invoices serve two critical purposes for your business:

• Payment collection: They create a clear payment request with specific amounts and due dates
• Tax compliance: They provide required documentation of your revenue and VAT collection for government records

How do you create an invoice?

Creating a professional invoice is straightforward. Following a few key steps ensures you include all the necessary information to get paid correctly and on time.

1. Choose a template or software. Start with a clean, professional invoice template or use accounting software to automate the process.
2. Add your business details. Include your business name, address, and contact information so your customer knows who the invoice is from.
3. Include customer information. Add your customer's name and address to ensure the invoice reaches the right person.
4. Assign a unique invoice number. Use a sequential numbering system to keep your records organised and make each invoice easy to track.
5. Detail the products or services. Clearly list each item, a brief description, the quantity, the price per unit, and the total amount for each line.
6. State the payment terms. Specify the due date and the payment methods you accept to make it easy for customers to pay you.
7. Calculate the total amount. Add up all the costs, include any taxes like VAT, and show a clear final total.

What to put on an invoice

What you're required to include on an invoice ensures legal compliance and clear payment terms. Every invoice must include:

Here are the essential details to include:

• Business information: Your company name, address, and contact details
• Customer information: Client name, billing address, and contact details
• Invoice specifics: Unique invoice number and issue date
• Payment terms: Due date and accepted payment methods

Transaction details include:

• Itemised services: Clear description of goods or services provided
• Pricing breakdown: Quantities, unit prices, and total amounts
• Tax information: VAT rates and amounts (if applicable)

For more detail on what to put on an invoice, check out our guide on how to make an invoice.

What are the different types of invoice?

Different invoice types help you handle different billing situations and customer needs. The main categories include:

Payment-focused invoices include:

• Sales invoice: Standard payment request you send to customers
• Past due invoice: Resent invoice marked as overdue to prompt payment
• Recurring invoice: Automated billing for subscription or regular services

Project-based invoices include:

• Interim invoice: Progress payment request during long projects
• Final invoice: Last payment request when project completes
• Pro forma invoice: Price quote that's not legally binding

Legal and compliance invoices include:

• Tax invoice:VAT-inclusive billing for registered businesses
• Commercial invoice: Legally binding document for import/export
• Credit memo: Reverses previous charges for returns or overcharges

When does an invoice get paid?

When invoices get paid varies significantly. While you set due dates, late payments can create cash flow challenges, with a 2023 survey of small and medium-sized enterprises (SMEs) and freelancers finding that nearly half of respondents had payments over 15 days overdue.

Here are strategies to speed up payments:

• Shorten payment terms: Set seven-day terms instead of 30 days for faster cash flow
• Secure upfront agreements: Get payment terms approved before starting work
• Send immediately: Issue invoices as soon as work completes, not at month-end
• Track systematically: Monitor which invoices are paid and unpaid daily
• Follow up promptly: Contact overdue accounts immediately when payments are late

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

What is invoice accounting?

When you account for invoices, you track the financial impact of your billing process by recording payments received and managing unpaid amounts.

Here's how invoice accounting works:

• Paid invoices: Create income entries in your accounts when customers pay
• Unpaid invoices: Remain as accounts receivable until payment arrives
• Automated tracking:Accounting software handles most entries automatically
• Professional support: Bookkeepers ensure accurate recording and compliance

Are invoicing and accounts receivable the same thing?

Invoicing and accounts receivable are essentially the same process. Both track money owed to your business.

The complete invoicing process includes:

• Agreement stage: Establishing payment terms with customers
• Billing stage: Creating and sending invoices for completed work
• Tracking stage: Monitoring which invoices remain unpaid
• Collection stage: Following up on overdue payments until received
• Recording stage: Updating accounts when payments arrive

This approach ensures consistent cash flow and accurate financial records.

Managing your invoicing process

Good invoicing does more than just ask for payment. It helps you maintain healthy cash flow, keep accurate records, and build professional relationships with your customers. By creating clear, timely, and easy-to-understand invoices, you make it simpler for customers to pay you, which helps you run your business with more confidence.

Using accounting software to create electronic invoices can streamline these steps, from creating invoices to sending automatic payment reminders. This practice, known as e-invoicing, is gaining global traction, with many countries establishing mandates to encourage businesses to adopt it. This frees up your time to focus on what you do best.

If you're ready to simplify your invoicing, you can get one month of Xero free.

FAQs on invoicing

Here are answers to a few more common questions about invoicing.

Is an invoice a bill or receipt?

An invoice is a request for payment for goods or services, which you send to a customer. For the customer, this invoice is a bill they need to pay. A receipt is a confirmation that payment has been made after the bill is settled.

What is the purpose of an invoice in business?

An invoice mainly requests payment from a customer. Invoices also serve as legal records of a sale, help you track revenue and accounts receivable, and support tax reporting and cash flow management.

How long should customers have to pay an invoice?

Common payment terms are 14 or 30 days, but this depends on your industry and your agreement with the customer. For better cash flow, some businesses are moving to shorter payment terms like seven days. State the due date clearly on the invoice.

What happens if an invoice isn't paid?

If an invoice passes its due date without payment, you should send a polite reminder to the customer. If it remains unpaid, you can follow up with more formal communications. For persistent late payments, you can also inform the customer in writing that you will exercise your statutory right to claim interest and be compensated.

Can you change an invoice after sending it?

You shouldn't change an invoice after you've issued it, as it's a legal document. If you need to correct something, the best practice is to issue a credit note to cancel the original invoice and then create a new, correct invoice.