Invoices are a common way to request customer payment, especially if you're in the service industry. Small businesses send these simple documents, often by email, to provide information about the completed deliverables, unit and total costs, applicable taxes and fees, and available payment terms.
In this article, I’ll explain everything you need to know about invoicing, including best practices.
What Is an Invoice?
An invoice shows customers line-item detail of the products and services they received from your business. This document also provides instructions about how your clients can pay, including due date, available payment methods, and even links directly to fast, easy online checkout.
At minimum, a small business invoice should include:
- Full names, business name, and contact information for you and the customer
- Descriptions of each delivered product or service
- Cost of each product or service
- The dates of delivery along with the invoice date
- Total cost
- Taxes, fees, shipping and handling costs, and other ancillary charges
- The agreed-upon terms of payment
- Details about how to pay
- A unique invoice number you can use for reference, typically in sequential order
You may also include information about discounts, available financing, and other resources that support fast and accurate payment.
What Is the Purpose of an Invoice?
Whether they're sent electronically or via old-fashioned ink and paper, invoices serve several important roles for you and your customers. These documents:
- Create a record of an account receivable for your business and an account payable for your client, which can serve as legal documentation to shield against fraud allegations
- Track physical products, a necessity for taxes, accounting, and inventory
- Establish a credit-based relationship since you're providing goods and services before you receive payment for those deliverables
- Give your business a professional appearance, which is especially important as you gain your first clients
- Provide a way to efficiently manage your company's cash flow and establish internal accounting controls
- Offer a rich source of customer data you can use to refine your products, services and marketing initiatives
Different Types of Invoices
Some of the most common types of invoices include:
- Timesheet invoices, common for professions like law, consulting, therapy, and freelance work like design or editing. You may also use timesheet invoices if your business involves renting out items by the hour, like equipment or temporary storage space.
- Recurring invoices, sent when you perform regular, ongoing work for the same client. As one example, you may use this type of invoice if you offer web hosting services for your customers on a monthly, quarterly, or annual basis.
- Interim invoices, sent at milestones during the course of an extended project. If you've agreed to accept installment payments for a project, you'll send this type of invoice prior to each payment deadline.
- Past-due invoices, sent when someone misses payment for your product or service. Depending on your sales agreement, you may add a late fee when your client doesn't pay an invoice on time.
- Pro forma invoices, which differ from other types since you send them out before you deliver the goods. Basically, they're a sales tool to show your potential customer what you'd charge for a proposed product or service – more of a quote than an actual invoice.
- Retainer invoices, commonly used for freelance and consulting work. In a retainer arrangement, your client pays for your work in advance. You send the retainer invoice to document this payment and charge for deliverables that exceed the prepaid amount.
- Final invoices, which wrap up the total cost of a project and report the final outstanding amount. Final invoices should list interim invoices you sent and payments the client made along the way.
- Credit invoices, issued when you need to make an adjustment in the customer's favor. For example, if you accidentally overcharged on a previous invoice, you'd issue a credit invoice to correct the error. It's also called a credit memo.
- Debit invoices, which request additional payment after you've already submitted an invoice. You can send this type of invoice if you made a billing error or the client requested changes that affect the amount due.
- Commercial invoices, which contain the necessary information for international shipping. You'll need to check all the boxes for cross-border customs, including an invoice that lists the total value of the shipment, the format you've used for packaging, the type of products you're shipping, the volume and weight of the package, and the overall shipment quantity. You'll also need to provide a dated signature.
Invoices vs. Receipts
Receipts and invoices document two different parts of the payment process. An invoice indicates that you've provided products or services and your customer needs to pay for those items.
A sales receipt shows proof of purchase and payment. It's provided after you complete the sale and receive the money from your client.
Best Practices for Writing an Invoice
These tips and tricks can help you develop a strong invoice template you can customize for each client:
- Place each product or service on its own row of the invoice. Then, add two columns for quantity and price so you can list those variables also. Then, a final column at the right multiplies quantity by per-unit price for the item total. On the bottom line of the invoice, you'll add all the rows and calculate taxes, shipping, and other fees.
- Use a professional template. You'll build trust with your customers when all your online and offline materials look the same, with your logo, a standardized font, and a basic color palette. Your invoice provides an opportunity to reinforce these elements, boosting brand awareness.
- Add a personal note. A quick "Thanks for your business!" or "Enjoy your holiday!" goes a long way when it comes to developing customer rapport. It gives your clients a glimpse of the real person behind the billing department.
- Give clients a discount for on-time payments. It's smart to implement this strategy if outstanding accounts payable begin to hamper your cash flow.
- Be clear about your payment terms. It's important to agree with the customer about how and when you'll receive payment before you do the work. Many small business owners use "net 30" payment terms, which means payment is due 30 days after the invoice date. Reiterate the agreed-upon terms on your invoice and list the accepted methods of payment. Make it as easy as possible to settle the invoice by using virtual invoices that link directly to your company's online checkout page.
- Include clear descriptions of the products and services provided. Include item numbers, SKUs, and other unique ID codes where available, especially if you're invoicing companies that deal with lots of suppliers and vendors.
The Best Way to Invoice Your Clients
You can create and send professional invoices in minutes when you use Pay.com as your payment services provider.
Our Pay Links provide the perfect balance of convenience and security, letting customers see their invoice, select their favorite way to pay, and check out in just a few clicks. We create a seamless user experience so your business can build a satisfied client base.
It's also simple to keep track of your invoices and send follow-up notices as needed through the intuitive Pay Dashboard. We offer detailed reporting so you can get a strong handle on your company's cash flow and make the necessary tweaks for effective management.
The Bottom Line
Invoices are a simple but essential element of a successful small business. Sending a detailed invoice in a timely way ensures you'll get paid for all your hard work. It also provides a critical record of your transactions, which you'll need to pay taxes on behalf of your business and balance the company's books so you understand where you stand financially.
Pay.com puts a big piece of the payment puzzle in place for new and veteran small business owners alike. We're ready to show you how to create and send secure online invoices with our comprehensive suite of payment solutions. Click here to get started.