Preparing invoices correctly may be a tedious task but having an organized and accurate system is vitally important to keep your business operating effectively. Learning how to invoice correctly and efficiently will cut down on your paperwork and get you paid faster, improving the overall financial management of your small business.
PRO TIP : Be sure to invoice your client as soon as the work is complete. Forbes has found that invoices that are sent the same day that a job is completed are 1.5x more likely to be paid.
What is an invoice?
An invoice is a business transaction that requests payment from a client for services rendered. An invoice is issued before payment is received, as a way of requesting payment by a specific deadline. An invoice provides the business with a record of the goods or services sold, for recordkeeping purposes. Note: An invoice is sent, while a bill is received. When you send an invoice to a customer, the customer then receives it as a bill- it's all about the perspective. In short, an invoice means you are requesting money, and a bill means that you are required to pay for something.
An invoice by itself is not a legal document. While invoicing is a vital accounting practice for businesses, invoices are not a legally enforceable contract between the company and its client.
What is the purpose of an invoice?
An invoice is an invaluable tool for accounting. It helps both the seller and the buyer to keep track of their payments and amounts owed.
What to include on an invoice
You should have a solid invoice template in place that includes the important information below.
A unique number – like #B-3467 – helps you track the number of invoices you’ve sent a particular client. This makes it easier to track unpaid invoices by searching the number. When it’s time for taxes, numbered invoices will help you avoid missed income data.
Your business’s contact information
Include pertinent information for your business so clients and customers know exactly who they are paying. Also include contact information for a team member who can address any issues or answer questions.
Recipient contact information
If possible, address the invoice to a specific person, including full name, email address and phone number. This will help you if you need to follow up on the invoice.
Business tax ID
Your customer may need your Tax Identification Number, or TIN, for their accounting purposes.
Clearly outline the payment terms and date of purchase or service.
List of charges
Detail what the invoice is charging for and break down costs if appropriate. For example, you may differentiate between product costs, labor charges, transportation expenses, etc. Include descriptions, dates, and locations associated with each charge if possible.
If your business is responsible for local or sales taxes on goods and services, break these amounts out on a separate line and include the tax rate percentage.
“Total Due” line
Make this line stand out from the rest of the invoice by bolding or highlighting.
Preferred payment method
Be sure to give clear payment options. Giving your customer the opportunity to pay online with a credit card will help speed up the process.
Small business invoicing do’s and don’ts:
Do double check dates
Make sure the date of your invoice is prominent, so customers know exactly when the payment is due. Make sure the dates indicated match when the work was completed.
Do follow up on overdue invoices
If the payment deadline has passed, send a reminder. Lots of things can cause customers to miss payments so confirm that they received your invoice. Once you know that the invoice has been received, start tracking the days and weeks until your payment due date, which should be clearly stated on the invoice. (15 days, 30 days, etc.).
Have a simple and clear invoice design
Consider your invoice part of your customer facing marketing efforts. Clearly highlight your brand and include a logo. Don’t complicate things. Make sure that above all, the information is clear and easy to understand.
Make sure your invoice is detailed
In some areas of customer communication, less may be more – but not when it comes to small business invoicing. Listing itemized products or services, fees, expenses, costs, and relevant dates not only reduces disagreements but ensures you’ll be paid what you deserve and that your customer understands the value you’ve delivered.
Do consider invoicing software
Visit Capterra.com to research various small business invoicing software. Look for reviews from real business owners along with pricing, pros, and cons.
Don’t be timid
Asking for payment can feel awkward, especially for a new business owner. However, an invoice shows customers that you value your products and services.
Don’t invoice before you’ve delivered the goods. However, strive to send your invoices while your business is still top of mind. Prompt invoicing shows professionalism and confidence, sending the message that you also expect prompt payments.