What is a business invoice?
An invoice is an accounting document that lists products or services a company has provided to a client or customer. They serve as a formal request for payment.
Your business likely generates an invoice for every sale. In addition, you may receive invoices for products and services your business buys from vendors and suppliers.
How do invoices work?
When you deliver a product or service to a customer, you typically include an invoice. Depending on your company’s structure, a member of your sales team or your accounting department may create the invoice.
After reviewing them for accuracy, the accounts payable department pays the amount owed. Your accounts receivable department then processes the issued payment.
What is on an invoice?
Most invoices include several key parts:
- Heading: At the top, an invoice typically displays the word “Invoice” in a large font so customers can immediately tell what the document is.
- Invoice number: A unique number often appears near the top of an invoice. You and your customer can use this number to track the sales transactions.
- Seller contact information: Your invoice should include your company name, mailing address, phone number and email so customers can contact you if they have questions. You may also wish to add your logo to the invoice.
- Buyer information: An invoice typically lists the buyer’s name, account number, address and phone number to help your team follow up as needed.
- Supply date: Details when the customer ordered or received the goods or services.
- Items received: Typically, this is a table with columns for the item description, quantity purchased, price per unit and total price.
- Subtotal: Shows the total cost of goods and services purchased before additional fees and discounts are applied.
- Discount: On this line, you record any money taken off the purchase price due to a coupon, sale or other promotion.
- Tax: Typically placed under the discount, the tax line specifies how much sales tax the customer owes.
- Total: Normally found at the bottom, the total amount owed is how much the customer must pay for the goods or services.
- Payment terms: Usually positioned below the items received table, this section outlines when payment is due.
- Payment methods: Often located near the bottom of the invoice, the payment methods area describes payment options and instructions. For example, it may say where to mail a check or explain how to pay via credit card or payment app.
- Purchase order number: If you or the customer assigned a number to the original purchase order, you may list it somewhere on the invoice for reference purposes.
How to prepare invoices
To prepare invoices for your customers, follow these steps.
1. Create a contract outlining the payment time frame for invoices
Let customers know upfront when payment is due. State the due date on the invoice and place the payment information on your website so clients know how many days they have to pay after receiving an invoice. Disclose whether you charge late fees and how much those fees are.
2. Select a mailing method
Select a uniform mailing method for sending invoices to clients. When deciding which to choose, keep your customers’ needs in mind. Some options for sending invoices include:
- Paper format via postal service
- Digital format via email
- Digital format via accounting software
3. Send the invoice with the products or services they ordered
Send the invoice with the products or services your client ordered or soon after. For example, if you own an online clothing boutique, you can send an invoice with the clothing items and accessories they ordered. Similarly, if you own an IT consulting firm, you can print a paper invoice and have the consultant give it to the client once their session has ended. You could also send the invoice via email directly after the session.
4. Make sure the document gets labeled as “Invoice”
Whether you send an invoice via postal service or email, label it correctly so your client doesn’t miss it. For example, if you send an invoice in paper format, include an “Invoice Enclosed” on the envelope. Similarly, if you send an invoice via email, use the subject line to help your client identify the email. You could include a subject line such as “ATTENTION: Invoice Enclosed” to get their attention.
5. Follow up on unanswered invoices
If you’re waiting to hear from your client about an invoice or receive a payment outlined in the invoice, you might follow up. It’s possible your customer didn’t receive the invoice or has forgotten to pay. A friendly follow-up call or professionally worded email can help you remain polite while making sure you receive the funds you’re owed.
When and why are invoices used?
Although the primary purpose of an invoice is to request payment, the document can have other uses. You may use invoices to:
- Help the bookkeeper report revenue when filing taxes
- Support market research that helps you predict future sales and trends
- Monitor company inventory over a period of time
- Set future sales goals and quotas
- Track sales growth
FAQs about invoices
What is the difference between an invoice and a bill?
Although the terms “bill” and “invoice” are sometimes used interchangeably, the words describe different documents. An invoice usually includes a list of the products ordered and the total amount owed. In contrast, a bill outlines outstanding payments and may not provide a complete list of the items purchased. You may send a bill to remind customers about unpaid invoices.
Is an invoice a receipt?
An invoice is not a receipt. Receipts confirm a customer provided payment.
Can I issue an invoice before a delivery?
Invoices shouldn’t be sent before delivery because the document proves you provided a product or service. To let a customer know you received their order, you can send an order confirmation document instead of an invoice.
What happens if someone fails to pay an invoice?
Each company has procedures on what to do when a customer fails to pay an invoice. In many cases, companies issue past-due bills to collect payment.
