What is an Invoice?

Definition

An invoice is a document that provides a standard way of recording a transaction between a payer and a payee. Although it is sometimes used like a receipt, it is not the same thing. An invoice is technically a request for payment.

Types of Invoices

Different situations call for different types of invoices:

• Standard Invoice - This is the most common kind of invoice. It's simply a request for payment on completed work.
• Proforma Invoice - This is like a quote, but more formal. A quote is simply informing the customer what they would pay if they wanted you to do the work. A proforma invoice is a more formal way to tell a customer what they're agreeing to.
• Recurring Invoice - This is an invoice you might send for recurring work. They're sometimes automatically generated.
• Corrected Invoice - Be sure to distinguish an invoice that has been corrected, from a new invoice.

What does an invoice do for me?

Invoices are useful for several reasons:

• Tax compliance - Invoices are required for some business tax filings.
• Legal protection - Invoices can serve as proof that the price of products/services was agreed upon.
• Cash flow management - Invoices help you keep track of what income is expected, but has not yet arrived.
• Professional image - Invoices are the way that professional businesses conduct themselves.
• Record keeping - Invoices can be useful in tracking historical performance.

What does an invoice need to include?

1. The provider's business information - The business providing the service and/or products should be identified by business name, address, phone number, email address, and any other relevant identifying information.
2. The customer's information - The business or individual who is paying for the service and/or products should be identified by name, address, phone number, and email address.
3. Invoice number - The invoice should have a number, selected by the provider (you), that uniquely identifies it from all other invoices you might generate. I like to create an abbreviation for the customer's name, and add a sequential 4-digit number, and a "C" for any correction. For example, Walmart's 4th invoice from me, that has been corrected, might be numbered "WMART-0004-C". This keeps it distinct from my other clients, identifies it as a correction, and points me to "0004" as the original invoice that was corrected.
4. Invoice date - This is the date the invoice was created, or most recently changed.
5. Due date - This is the date when the invoice must be completely paid. Paymets AFTER this date, will be considered late, and will be subject to any consequences that you have already described to the customer in your agreement.
6. A list of items to be paid for, with details like the follwoing:
   1. Description of work - This is a brief description of the work or product that was purchased.
   2. Quantity - This This is the total number of units they purchased. If you did 40 hours of work, this would be '40'. If you sent 3 crates of peanuts, this would be '3'. If you prepared 10 income tax returns (and you're charging per return, rather than per hour), then this would be '10'.
   3. Units - This should be a brief description of the unit of work/product that is used to calculate the final price. Work is usually in hours, but might be listed as a whole project (if you charge per tax return you might use 'each' or you might us 'tax return'). Products are often per 'each' or 'crate' or 'box'.
   4. Rate - This is the amount of money they paid for each of the units. Again, work will be per hour, so if you charged them $50/hr, this would be something like '$50'. If they bought 3 crates for $100 each, this would be '$100'.
   5. Total amount - This is the total amount of money the customer owes for this 'line item.' If you did 40 hours of work at $50 per hour, this will be '2,000'. the Just Invoice Me page will calculate this automatically.
7. Payment terms - This should be a clear description of both HOW you want to be paid, as well as WHEN you want to be paid. E.g. 'Due upon Receipt' is a common way of saying "this should be paid immediately." 'Net30' is an industry standard way of saying "payment should be completed within 30 days."

Best Practices

Follow these tips for professional invoicing:

• Be clear and detailed - Avoid confusion about what was provided. Often, for very complicated work or very specific requirements, a 'Statement of Work' will be used at the beginning of a project to thoroughly describe expectations.
• Send promptly - Create and deliver your invoice immediately after completing the work.
• Connect Corrected Invoices - If you need to correct an invoice, append a "C" to the end of the invoice number. This will clarify that it is a correction, and if you use the original invoice's number, it will also help track WHICH invoice got corrected.
• Set clear terms - Specify when and how payment is due. "Net30" is industry standard, but be aware that this is like an interest free loan. (check out this article about choosing payment terms)
• Use professional design - A clean, organized layout is easier to read, and avoids suspicion.
• Follow up - Send reminders for overdue payments. Most customers are willing to pay, but can get overwhelmed.