It's easy to see why small businesses rely on verbal commitments and informal vows when handling transactions. But just because it works now doesn't mean it could generate the…continue reading
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What Is an Invoice?
An invoice, otherwise known as a sales invoice or a bill, is an official document that records the products and services provided by the business to a client in exchange for payment. It is issued to establish an obligation that clients have to compensate firms or contractors for the work done. It is crucial for every business, regardless of size, to invoice these transactions to ensure they get paid promptly. The invoice can also remind clients how much they owe a business and why. This will further verify the agreement between a buyer and a seller as part of your company’s bookkeeping and accounting responsibilities.
Although printed documents were mailed to buyers back in the day, technology has now made it possible for sellers to request payments online through various electronic systems in the market.
Reasons to Issue an Invoice
Running a business can get overwhelming at times. One of the responsibilities that come with the job is the process of sending invoices and receiving payments. Unfortunately, not many SMEs seem to recognize the importance of invoicing to their daily operations. So to understand the role that these documents play in the world of business, let’s discuss the key purposes of invoicing for efficient sales and accounting.
How to Make an Invoice
Nearly every type of business you can think of may benefit from the use of an invoice. Like any other accounting invoices and documents, billing statements like these enable you to inform clients of the expenses they are obliged to settle within a particular period. It’s a time-consuming task that often adds a bit of weight to your already hectic workload. Still, this shouldn’t stop you from making an invoice that works. Even if you decide to use an invoice template to speed up the process, you’ll still need to fill the document with the required details. Hence, you may want to consider taking a more efficient approach with the help of the steps below.
Step 1: Start with Your Business Information
Your company information is a vital element of the invoice that you must never overlook. This includes your logo, legal company name, office address, phone number, and email. While branding might be a common reason to have it in your invoice, keep in mind that the invoice may also inform clients of ways to contact you in case they have any questions to raise. They could also refer to the invoice if they wish to get in touch with you for future projects. Be sure to put and organize this information in the most visible area of your invoice for recipients to locate.
Step 2: Address the Recipient
Think of it as a formal business letter. Aside from identifying the business sending the invoice, you also need to direct it to the right person or entity. If you’re billing it to a company, the invoice must clearly specify who the payer is in this arrangement. Proper spelling must be observed to prevent legal issues along the way. The same applies for addresses, emails, and other unique indicators that may be pertinent to the case. The last thing you want is to misspell the name of the person you are expecting payment from.
Step 3: Record Key Components of the Billing Statement
No two invoices are the same. In addition to payer and payee details, invoices vary in terms of the payment date, the amount due, and the billing number. The presence of a unique identifier makes it easier to track the billing statement among a thousand other records. Rather than informing clients and colleagues about the invoice you sent a week ago, you can refer to the billing number for quick identification. It also makes tracking more convenient during tax season, especially when the business has been booming over the past couple of months. Most electronic systems issue these invoices based on unique and sequential invoice numbers as a more practical approach to accounting.
Step 4: List Down the Products or Services Sold
Make a detailed list of the products or services being invoiced, along with any additional expenses that came with it. If you’re hired to play a few songs for an event, for example, your contract may indicate other fees apart from your standard service rate. This may involve food, travel, and lodging for events held outside of town. Make sure to list each item separately for a comprehensive and accurate breakdown of the costs.
Step 5: Indicate the Total
The amount that clients are expected to pay should be inclusive of taxes, discounts, and other additional fees. Since these components are not a part of the invoiced items, they are usually listed separately on the bill. Always remember to review the total amount before sending it to its respective recipient. Any discrepancies or miscalculations in the invoice may cause problems, putting you and your team at a disadvantage.
Step 6: Provide Your Terms of Payment
What modes of payment do you accept? How may business days are involved in processing the payment? What other terms do clients have to take note of? All these must be stated clearly in the invoice for a smooth transaction. You can also provide a few instructions if necessary.
The Dos and Don’ts of Invoicing
People often assume that getting paid for their services is a quick process to undergo. What they don’t realize is how common it is for clients to ignore invoices even after a project’s completion. It’s even more frustrating for freelancers or independent contractors who rely on these payments to make a living. If you’re new to the game, here are a few reminders to help you survive.
1. Do make it clear.
The invoice should communicate all the relevant information considered valuable to your business and your clients. This includes the names and contact details of each party, as well as the breakdown of the total amount due. Be sure to double-check the contents of your invoice for any errors or missing information that may affect the final bill. Organizing these items appropriately in your layout is also essential to avoid confusion. All these must be relayed clearly in the invoice for the recipient to grasp without question.
2. Do be courteous.
It’s only natural to want to get paid for the services rendered as soon as possible. But it’s an unfortunate reality that not all clients are as prompt when it comes to settling dues. Although you may feel tempted to corner a client on the ongoing debt, it pays to be patient in most cases. Some companies struggle to keep track of contractors simultaneously, so you need to be considerate about the approach you use to deal with the matter. You can stay on top of the case by approaching clients politely. Remind them of the unsettled invoice, and perhaps you can negotiate on a possible extension.
3. Do keep it simple.
It’s best that the invoice only lists what’s necessary for the transaction. A warm greeting can also be a nice touch when you deliver the invoice through email. Not only will it make you look professional, but it also shows how much you value every one of your clients, regardless of account size. You may also want to simplify the process for your recipients by sending the summary in a PDF format. You can keep the contents of the invoice brief and straightforward by eliminating heavy graphics or chunks of text that play no significance in its function.
4. Do take note of deadlines.
Like a business contract, the terms of the transaction must be specified clearly in the invoice. This means you must guide recipients on the amount and date of due. Some clients tend to take advantage of the situation if no proper terms were set during the agreement. Merchants and small enterprises that choose to do business outside of the U.S. usually expect a 60% delay in invoice payments, according to EXIM Bank. It can get frustrating at times, especially if they don’t take the initiative to inform you about why they keep missing deadlines in the first place. Thus, you’ll want to avoid an intentional delay in payments by letting your clients know when you want to be compensated for your work.
5. Do secure a copy of the invoice.
While this may be standard protocol, you’d be surprised by how easy it is for companies to lose or misplace a copy of the invoices they send to their clients. Carelessness may be a common reason for such, but it’s also the lack of value they have toward these financial documents. And with the thousands of invoices sent by SMEs every year, you’ll need to have a proper system to keep these files in order. That means using a numbering scheme that reflects the date of the invoice, along with an appropriate file name. For multiple transactions with the same client, you can enclose the files in one folder to make it easy to find.
1. Don’t make unnecessary surprises.
Clients should know exactly what they’re paying for. Nothing in the invoice should go beyond what they expected, mainly when everything had been thoroughly discussed beforehand. Otherwise, any hidden charges added to the total bill could lead clients to question your credibility as a professional entity. It could also send a warning to potential clients and new customers who already inquired for an estimated quotation of the total. This will only cause you to lose clients and prospects altogether. The invoice must only include an itemized list of expenses that the client is fully aware of.
2. Don’t make any delays.
Don’t wait until the last minute to send the invoice. You can’t expect clients to pay on time if you can’t even supply them with an invoice as soon as the work is done. Delays can also prompt your clients to slack off and take you less seriously than they should. In some instances, clients who still owe you might expect you to be more flexible in terms of receiving payments. You wouldn’t want to spend your time hunting down clients who have piles of unpaid work that they have yet to address. The sooner you process the invoice, the sooner you are compensated for your work.
3. Don’t be afraid to make follow-ups.
You might think that follow-ups make you sound demanding, but that isn’t always the case. Clients who go way past their due dates deserve to be confronted immediately. This is the only way for you to find out whether they have an acceptable reason for not paying at the scheduled time. If you haven’t heard from the client in a while, it won’t hurt to ask for a quick update on how things are going. This is also an opportunity for you to address questions or concerns that clients have but kept mum about. It’s essential to keep the lines active between you and the other party to prevent costly issues down the road.
4. Don’t feel the need to explain everything.
Notes are typically added in an invoice to explain certain areas that may seem inconsistent or unclear to a recipient. This will guide clients in understanding how these figures came to be, based on your calculations. This might surprise a client at first, which is why you need to explain your part of the deal clearly in your email greeting. Be sure to prepare a reasonable explanation that won’t cause clients to doubt your work. Allow them to ask questions over matters that concern them, as you wouldn’t want to leave your clients hanging.
5. Don’t let your emotions get the best of you.
Be patient, regardless of the situation. Fight the urge to approach your clients with an angry message that could burn the bridges of your current business relationship. You must handle complications with grace by facing your clients with a professional front. We understand that it’s frustrating to deal with clients that exhibit unethical behavior. But remember that these are also the people that owe you a significant amount of money for the work you have done. So if you still want to see a cent from that payment, learn to control your emotions before doing something you know you’ll regret.
Creating invoices is all in a day’s work. If you want to be compensated more quickly and consistently by clients, it’s essential to be extra careful when invoicing. This means ensuring that the information contained in the document is complete and accurate to avoid problems down the road. It’s a delicate procedure that demands your utmost care and attention to generate successful transactions for your business.