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A Beginner’s Guide to Invoices

It’s probably fair to say that invoicing will never be the most glamorous part of running a business. But invoices are some of the most important documents you and your business will ever create, so getting to know how to create perfect invoices for your business is worthwhile.

If you’re just starting out as a freelancer or you’ve just opened a small business, you might still be wondering “What is an invoice?” or “How do invoices work?” The idea of creating your first invoice can seem quite complex at first.

That’s why we’ve put together this beginner’s guide to invoicing, helping you understand the basics of invoicing and how you can use them in your business.

In this guide, we’ll cover:

  • The basic definition of an invoice

  • What invoices are used for

  • The most common types of invoices

  • What an invoice should include

  • How to send an invoice

Invoicing basics

Before we dive in, let’s start with the basics.

Definition of an invoice

An invoice is a document that you send to your customer after they purchase goods or services from you, as a proof of the sale and for requesting payment from them.

Specifically, an invoice states in writing what exactly the client purchased, when they purchased it, in what quantity and at what price.

Purpose of an invoice

Invoices are legal documents that create a binding agreement between you and your customer, obligating your customer to pay the agreed price by a specific day.

As a result, invoices can be used when taking more formal actions, especially in the case of overdue or missing payments.

That’s because, in addition to stating the total amount to be paid by your customer and when the payment must be made by, invoices also identify the payment terms and what, if any, the potential penalties are for late payments.

What invoices are used for?

Invoices as an essential part of running a business have lots of advantages. Here are a few of the main ones:

Invoices prompt payment

Every business needs healthy cash flow, whether it’s for paying wages, paying bills or buying supplies. It doesn’t take much to understand the importance of making sure money flows in.

That’s why invoices are so important – they help you collect payments. More than that, a professional invoice that contains all the right information doesn’t just get you paid, but it also makes sure you get paid on time and in full, which is not always as straightforward as you might think.

Invoices keep track of sales and payments

Invoices are the easiest way of keeping records for all your business transactions.

If you’re a business that sells products and buys supplies, invoices serve as key documentation of these commercial processes and can help you keep an eye on all the money coming in and going out.

They also allow you to follow up on any payments that didn’t arrive on time or were perhaps paid in the wrong amount.

For your customers, invoices serve the purpose of recording the sale and informing them of how much they need to pay and when, which is essential to keeping their own accounts in check.

Invoices get you paid faster 

The third major benefit of invoicing is that your customers can pay you faster. After all, the sooner you send an invoice, the sooner your client can pay you. You can also specify a certain due date to make sure that your payment arrives with you quickly.

Of course, this is convenient for any business. But it’s especially useful to anyone just starting out, for which every payment, big or small, can make a big difference.

How’s an invoice different from a bill or quote?

The terms “invoice”, “bill” and “quote” get tossed around a lot and are often used interchangeably. But bills and quotes are different documents entirely, with different purposes and varying significance.

Quote

A quote is a document you might send a customer at the start of a potential sales process to provide an overall cost estimate for the goods or services the customer has expressed an interest in.

Unlike invoices, quotes are not usually highly detailed and crucially, they carry no weight as they do not oblige the customer to pay or proceed with the transaction in any way.

Bill

A bill, like an invoice, is a document sent after a sale has been made, which can be confusing.

But while an invoice contains a set of details and is labelled specifically as an invoice, a bill is a more generic document with typically fewer details included. For example, if you dine at a restaurant you’ll often be presented with a bill that contains the total due for the meal. Bills also may not be numbered sequentially or contain details about the customer.

What are the different types of invoices?

Unfortunately, there isn’t just one type of invoice out there – in fact, there are many. While they often serve slightly different purposes, they tend to include much of the same information.

Here’s an overview of the five most common invoices used by freelancers, contractors and small businesses.

Standard invoice

This is the most common type of invoice and is the type described throughout this guide. A standard invoice records a sale between a buyer and a seller and seeks to collect payment from the buyer.

Commercial invoice

A commercial invoice is used when you’re selling your goods internationally and you need to provide a detailed cost description for customs officials.

Proforma invoice

A proforma invoice is a provisional bill of sale that you send your customer before providing your goods or services. It differs from a standard invoice in that its terms of sale are still subject to change.

Recurring invoice

As the name suggests, recurring invoices are used to make or request payments that happen on a regular basis. They come in handy if you have a contract which involves monthly payments or a customer who has an ongoing subscription for your services.

What should an invoice include?

Creating an invoice with the right information can make all the difference when it comes to getting paid. Even the slightest error or omission might lead to your customer not paying you on time, in full or at all.

Here’s a quick look at all the information you need to provide, no matter the type of invoice you’re creating.

Details to include

  • A unique invoice number

  • The date the invoice is issued

  • Your company’s name and contact details

  • A description of the goods or services

  • The date the goods or service were provided

  • The price of the goods or services

  • Tax based on your location 

  • The total amount owed

  • Payment terms, such as a due date

How do you send an invoice? 

So, now you’ve created your invoice. What about sending it? Well, there are two main things you need to consider: what format to send your invoice in and when exactly to send it.

Invoice templates

Creating an invoice might seem like a daunting task, but it really doesn’t have to be. 

Yes, you can use Excel or Word – or even a pen and paper. But these methods are both time-consuming and prone to manual error.

Many businesses make their lives easier by using invoicing software to generate their invoices, which offer ready-to-use invoice templates that simplify the process.

Using an automated system helps you to avoid making mistakes that may impede your payment. And it’s worth noting that if your invoices have miscalculations or other incorrect information, your customers have no incentive to pay you. After all, why would they want to pay the wrong sum?

Get started with SumUp Invoices today

With SumUp Invoices, you can create and send professional invoices in under a minute and send them to your customers via email, all from your phone or tablet. It’s the simplest, safest way to record your sales and collect your payments. Try SumUp Invoices now!

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William Simpson