New to the world of business? You might not know the ropes of running a business, yet. Well, it all starts with learning the basics.
No matter what’s the type and size of your business, you need to get schooled and learn the nitty-gritty of running a business.
When you are putting all your heart and soul into growing a business, losing out on finances can be really heartbreaking. Invoicing plays a major part in improving your cash flow. Even though it is a small financial process done occasionally, if you ignore it, your business will certainly suffer a loss. Hence, it is fundamental to get a knack for this commercial document.
Let’s start from the scratch
What is an invoice?
An invoice is a document issued by a business to a buyer that lists the products and services offered, quantity, cost, and request for payment for those products and services.
The invoice tells your client how much they have to pay and when the payment is due. It is a crucial document for businesses to get paid.
Historically, an invoice was a paper document. After a period of time, invoice templates became popular. Online invoicing software is a bit more advanced and easy way of creating and sending invoices to clients, these days.
Before we go into detail about what an invoice is, let’s discuss some interesting facts about this financial tool.
- The average time for a business to receive money for a sale – 66 days
- Generally, a company in the B2B sector gets paid in 85 days.
- As per studies, one out of four companies gets paid after 90 days.
- Approximately, 10% – 15% of invoices required payment reminders, and nearly half of B2B companies get paid late.
- As per research, nearly 10% – 20% of late payments are due to wrong information, and about 7% – 15% of invoices get delayed because those are sent to the wrong recipient.
What is an invoice used for?
Invoice records a sales transaction between a buyer and seller and is used for a variety of purposes that includes:
Payment requests from clients
- To get paid on time
- Sales tracking
- Expense tracking
- Inventory tracking (if your business deals with product selling)
- Historical data to predict future sales
- Overview of business condition
- Tax filings
In countries like Australia and Canada, if the invoice value exceeds a certain threshold then the invoice needs to add GST. Even in the UK, if a business makes more than £83000 in a year, then a VAT invoice is required to be issued.
What is included in an invoice?
Any important information ignored in an invoice can result in failed payment and eventually affect your business finances. Every professional and standard invoice should contain a combination of the following details:
- Unforgettably the word ‘Invoice’
- A unique invoice number/ID for reference
- Customer’s information like name, address, contact details
- Business/seller’s information like name, address, contact details
- Date of invoice issued
- Payment terms which include mode of payment, payment due date, discounts
- Late payment charges if any
- Itemized list of products/services
- Description of products/services
- The total amount charged
What is an invoice number/invoice ID?
An invoice number or invoice ID is a unique number generated for each invoice. This number is included in the invoice which acts as a reference number for business as well as the client to identify a particular transaction.
Best practices of assigning invoice number
The usual way of numbering the invoice is the sequential way. Auto-updated or manually, it is an easy way of generating invoice numbers without worrying about duplicate IDs.
For example – Invoice No. #01 Invoice No. #02, Invoice No. #03…..
You can assign the invoice number chronologically. It is usually date format affected sequence and the series of the number will be sequential.
For example – If the invoice is generated on 30 October 2020 and if the customer ID is 403 then the invoice number assigned would be 20201030-403-01 (yyyy/mm/dd-customer id-unique number).
An invoice number can also be uniquely a combination of numbers, letters, and special characters. However, even if the invoice number is alphanumeric, it is better to keep it sequential to avoid confusion.
For example – 2020/INV/01, 2020/INV/02, 2020/INV/03…..
Customer name or Project name/number
An invoice number can be assigned as a sequence using the customer name or even the project name or the number for more clarity as a reference in the future.
For example –
With Customer name – CN001, CN 002…
With Project name and number – PN-300-01, PN-300-02, PN-300-03…
With Project number – 300-01, 300-02, 300-03…
Types of invoices
Most businesses use standard invoices for billing but there are some industries that require a specific type of invoice. It depends on the type of operation, the products, services, and various other factors.
Basic invoice including all details with the unique invoice number. It is used by most industries like retail, wholesale trade, agriculture.
It is used for customs declaration when the goods are sold internationally. Apart from basic details, this invoice also includes shipment quantity, the amount of tax payable, and other things necessary for cross-border sales.
This invoice is used when the work is stretched for a longer period. Progress invoice is mostly used in the construction business.
Telephone bills, electricity bills, internet bills, all such utility bills are considered utility invoices. The due date is already mentioned in such types of bills.
Similar to a quote or estimate, a proforma invoice gives the buyer a rough idea about the cost of products or services. The cost is negotiable. However, this invoice is not treated as a final invoice.
It is the invoice that is sent to clients on a regular basis. For the clients who are charged the same amount periodically, the recurring invoice can be sent.
There are more types. Know every type of invoice in detail. – Types of Invoices
Tips for invoicing
To make sure you invoice properly and get paid on time, follow these few tips:
- Negotiate and include suitable payment terms in your invoice
- Make sure the payment process is easy for clients so that you get paid on time
- Get upfront payments
- Include personal or thank you note on the invoice as this will help in retaining your customers
- Charge late fees if the client fails to pay on time
- Automate your invoicing process
(Australia, Canada Singapore, New Zealand, Malaysia, Maldives, India)
|As per studies, North American Trucking companies have around $140 Billion in outstanding invoices.||In the UK, 54% of invoices are sent to the wrong address due to which it receives late payment.||Payment terms are quite different all across Europe. It’s 48 days in Spain, while 22 days in Germany.||In Australia. Estimated 53% of invoices are paid late by large companies than small or medium-sized companies.|
|Approximately, 49% of B2B invoices are to be overdue.||Around 63% duplicate invoices are received by businesses in the UK and out of these around 33% gets paid.||Nearly 30% of invoices remain unpaid in Western part of the EU. Whereas the numbers are comparatively lower on the other side.||In New Zealand, average businesses are paid 9 days late.|
|Around 26% of invoices get paid late due to incorrect information.||57% of invoices are received on paper in the UK.||As per research, about 50% of customers pay their invoices late intentionally.||Most commonly used payment methods by small-medium enterprise and mid-market companies in Canada are EFT, credit cards and Cheques.|
|In the US non-profit or education industries incur a maximum cost of $16.78 by processing invoices. Whereas, wholesale/retail industries earn least.||As per assessment it has been found out that large companies take 30% more time to pay invoices than smaller companies.||Late payment by customers in 2019:|
B2B: 40 days
B2C: 23 days
Public sector: 42 days
|Singapore had implemented a system nationwide in 2019 to help businesses boost work efficiency, reduce cost and speed up payment.|
|Most interesting fact is that about 400 billion invoices are produced every year.||Government is required to pay 80% of invoices within 5 days.||As per study, in 2020 due to the first wave fo COVID late invoice payment count increased to upto 70%.||In this digital era, about 70% of invoices are still paper-based.|
Switch to online invoicing
The details of the work and the professionalism that is offered by online invoicing software are unmatchable. Cloud-based invoicing software like Billbooks enables you to automate the invoicing process and send professional-looking invoices in less than 60 seconds.
Benefits of modern invoicing software:
- Create customized invoices
- Automate tedious recurring tasks
- Make the payment process easy and secure
- Reduce labour cost
- Chasing late payments made easy
- Improve cash flow with faster payments
- Enhance customer relationships
An invoice is not just a legal document or sales receipt, it is your ticket to get paid and improve cash flow. Right invoicing software can streamline your process and simplify accounting.
FAQs related to Invoice:
Experts advise that one must create and send invoices as soon as the order or the task has been completed. Failing to do so, would result in delayed payment which would slow down your business cash flow.
Make payment terms very clear from the very beginning. Net-30 is the common payment term, but you can choose your payment terms depending upon your business and your clientele relationship.
No, invoices are not legally binding on their own. It becomes a legal document once both parties agree on the terms and conditions. To reduce the chances of disputes it is better to have a proper legal contract ready before you move on with the business deal.
If a customer disagrees to pay the invoice then you must take a step forward to resolve the invoice dispute. Generally, discussions help sort out things but in case it doesn’t help you may have to escalate the dispute to take legal action.
In other cases, clients simply leave the invoices unpaid but they do agree to the terms. In that case, send payment reminders to inform them about your late fee policies to speed up the process.
Online platforms are the easiest way to track and manage your invoices. Invoicing software helps in bookkeeping, sends professional invoices, tracks unpaid invoices, and even sends reminders where needed.