Invoicing Basics Made Clear – What is an Invoice?

Invoicing Basics Made Clear - What is an Invoice?

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 in growing 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 the knack of 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.

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 request from clients

  • To get paid on time
  • Sales tracking
  • Expense tracking
  • Inventory tracking (if your business deals with products selling)
  • Historical data to predict future sales
  • Overview of business condition
  • Tax filings

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?

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 customer name or even project name or the number for more clarity as a reference in 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 of the businesses use standard invoice 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.

Standard invoice

Basic invoice including all details with the unique invoice number. It is used by most of the industries like retail, wholesale trade, agriculture.

Commercial invoice

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.

Progress invoice

This invoice is used when the work is stretched for a longer period. Progress invoice is mostly used in the construction business.

Utility invoice

Telephone bill, electricity bill, internet bill, all such utility bills are considered as utility invoice. The due date is already mentioned in such types of bills.

Proforma invoice

Similar to quote or estimate, 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.

Recurring invoice

It is the invoice which is sent to clients on a regular basis. The clients who are charged the same amount periodically, to them 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

Switch to online invoicing

The details of the work and the professionalism that is offered by online invoicing software is unmatchable. Cloud-based invoicing software like Billbooks enables you to automate the billing 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.

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