Almost all small businesses have heard of invoicing. After opening your business, like getting your first suit, you look forward to sending your first one because it means you have made money. But when that crucial moment comes you start to wonder how it written? What does it need to say? Will it look bad and spoil my brand? Will my customer see it is missing crucial items and decide to put off paying you, simply because they can?
These are all legitimate concerns, and you won’t be the first person to get a little nervous. No need to fear. In this blog we let you know everything you need to know to successfully create professional invoices that customers want to pay.
What is the purpose of an invoice?
An invoice is a legal document that tells your customer exactly what they bought, in what quantity, when they bought it, when and how they can pay you, and the penalty if they don’t pay you.
Without an invoice it is much easier to dispute payments and communication with your customer is more difficult as there is no formal all-in-one document of their payment obligations.
What should an invoice include?
There are a number of straightforward but necessary items small businesses should include when invoicing. It is important to include them all because even leaving one out will delay payment – We are not saying all your customers will try and avoid paying, but you have to remember they need a correct invoice for tax purposes. If they receive an incorrect one it will mean they have to write back to you to change it, it won’t be a priority and you will end up getting paid late.
Details to include:
- A unique invoice number
- The date the invoice is issued
- Your company’s name and contact details
- A description of the goods or services
- The date you provided the goods or service
- The price of the goods or services
- VAT, if applicable
- The total amount owed
- Payment terms, such as a due date
Types of Invoices
Above we have described the standard invoice items for a domestic payment claim for goods and services delivered. However, there are a number of different types of invoices which will require additional information or service a slightly different purpose.
This is the invoice described above through this blog.
Goods going in and out of the country may be subject to customs duties. A commercial invoice accompanies goods and it more closely breaks down the items sent so that the correct duty is charged.
This is an interesting one and can be a little confusing. It is often described as a quotation in the form of an invoice. But think about it like this: If you have won their business and you want to confirm and clarify the terms you send them a proforma invoice. Whether you send both will depend on your industry. Exporters usually like to send proforma invoices as they are dealing with large amounts of money and the proforma invoice acts a a confirmation.
As the name suggests it is used when you have a long term relationship with a customer and you receive monthly or quarterly payments.
For businesses that are VAT registered, you can use this when you to reclaim the VAT on the goods or services you buy or you want to charge VAT on sales.
Invoices versus Quotations
A quotation serves a very different purpose to an invoice. You give a quotation when you are trying to win someone’s business. It can be quite a long document in which you set out the services you will offer and then how much you will charge for them. It is often negotiated, for which there will be amendments and a final quotation. Unlike an invoice, it doesn’t have legal weight or an obligation to pay money. As mentioned earlier, that is the purpose of the invoice.
Benefits of Invoicing
Unless both businesses are registered for VAT, it is not a legal requirement to send an invoice. You can still do it old school and ring up your customer or put a note through their door to get payment. As long as you keep accounts and declare your taxes you won’t have broken the law. However, invoicing helps in many ways.
In the real world, people only pay their bills when they have to, and an invoice helps concentrate their minds. It is a formal document that contains all the information necessary to make that payment; this makes it easier and more convenient to pay and it clear that you are a professional organization.
Better Organised Payments
If all your payments are turned into invoices, you can more easily track and organise received and outstanding payments. This is especially the case if you go with invoicing software where you can instantly send and then automatically track all payments, filtering for things like different areas of your business, dates, received and outstanding, and many more. Even if you are just emailing or faxing your invoices, keeping them in a folder on your computer will still be much clearer and faster to use than trawling through letters, emails and phone calls.
Get More Business
In most cases, your customers will demand an invoice – This is because they will be submitting your costs as an expense to reduce their tax bill – and if you don’t want to give one that business will most likely go away very fast.
You should take every opportunity to promote your brand and therefore a well-designed invoice with your logo should not be an opportunity to miss. You come across as professional and your customers are more likely to remember you.
Hoof’s payment solution makes it extremely easy to create and send invoices – as well as recurring payments. In-built card payment function makes it easier for your customers to pay you as they only have to click a link.