Is it Mandatory to Use Invoicing Software?

For small businesses, growth is often the main goal and a welcomed result of hard work. However, with growth comes new sets of challenges, particularly surrounding the best way to handle required documents, like invoices.

While Word or Excel invoices are a great place to start, you may eventually realize that they're not enough. While they’re a great option for issuing a small number of invoices, it can quickly become more complicated to keep track of your outstanding payments when you start accepting more sales.

While invoicing software is not required for freelancers and small businesses in the US, it can make a big difference in creating, issuing, and managing invoices and associated payments. This article dives deeper into how invoicing software can help your business create easy, professional invoices.

Create legally compliant invoices easily

An invoice should always follow a certain set of guidelines and contain specific information. The right invoicing software will ensure that each invoice you create adheres to the requirements for your business.

While some required information might vary depending on location (such as tax rates), there are some basic details that should always be on an invoice. Some of these details include you and your customers’ full name and addresses, the issue date, and a unique invoice number. Your invoices also need to have information about the product or service being sold, including a description, quantity, and a price breakdown.

Using invoicing software means that you will be working with a template that requires these fields to be filled in, which also means that every invoice you create meets local regulations.

Can you create invoices without invoicing software?

Yes, you can create invoices without using invoicing software as long as they meet the legal requirements for the location of your business. 

Using software such as Word or Excel can be an easy way to get started, but keep in mind that these templates are often not updated or catered to your business location, nor do they aim to ensure compliance with regulations. 

Advantages of using invoicing software to create invoices

While it’s not required to use invoicing software for creating invoices, it certainly can help when it comes to issuing and managing invoices for your business.

Prevent mistakes with invoicing software

The risk of using Word or Excel to create invoices is that without any kind of guidelines, there's a higher chance of making mistakes. For example, entering an invoice number you’ve already used, calculating the tax incorrectly, typos in the customer details, and more. It’s natural that errors happen, but mistakes can cost you both time and money.

That’s where invoicing software comes in, because they’re designed to help prevent these simple errors. They also automatically track your invoice numbers and suggest the next available one in your sequence, and calculate tax based on your location. Additionally, invoicing software allows you to save customer information so it can be added easily next time you send an invoice.

By using software built for making invoicing more efficient, you’re minimizing the risk of making mistakes that could potentially impact your sale or how quickly you get paid.

Canceling invoices correctly with invoicing software

After an invoice is completed, it shouldn’t be deleted because it acts as a proof of sale in case you need to prove the sale was made. However, a sale might be cancelled for many reasons, like a product was added incorrectly to an invoice, or the total is incorrect. Instead of deleting it, you can issue a credit note to your customer. 

With invoicing software, a credit note is automatically linked to the corresponding invoice, so it’s clear when and why a particular invoice won’t be paid. This is important to keep for your own records, but also in case the IRS wants to take a closer look at your business.

Organize for tax filing with invoicing software

Beyond sending invoices, invoicing software helps you keep track of the transactions your business does. From orders to payments, it’s all part of your cash flow and it’s important to stay on top of it while running your business.

Every time you create a new invoice, receive payment from a customer or have an expense, invoicing software will automatically update your financial reports that are important for submitting your self-employment income taxes.

Reports are automatically generated using the data you’ve entered in your invoicing software. They can be incredibly useful when it comes to filing taxes by helping ensure that the numbers are correct to avoid potentially costly mistakes.

Invoicing software: Not mandatory, but highly recommended

Businesses that need to send invoices have many options when it comes to finding the right software. Although it’s not required that you use invoicing software, using software that’s been designed with freelancers and small businesses in mind helps prevent possible mistakes and ensures you’re creating professional invoices.

Invoicing software can also better cater to the needs of your business. You can invoice in different currencies, instantly translate your invoice to another language, or cancel your invoice with a linked credit note, all in a few clicks. Invoicing software aims to save you time so you can spend more time on running the enjoyable parts of your business, while helping you stay organized and professional.