The definition of an invoice is simply a document listing goods or services and the total amount expected as payment for delivery of these items. For most business owners, invoices are formal documents outlining specific transaction details to ensure they receive proper compensation. Businesses use invoices to monitor cash flow and help ensure they receive payment in full and on time. Invoices also serve as records of sales, providing a way to track:
- The sell date of a good or service
- How much is the business charged for the good or service
- Any outstanding balances the client owes
Additionally, invoices can help you protect your company in the event of an audit, as they help to create a paper trail. Detailed invoices will show the IRS exactly where your money came from should they question your tax returns.
How invoices differ from bills and receipts?
Both invoices and bills are records of a sale that indicate how much a customer owes a seller, and both are issued before a customer has made payment for the transaction. However, there are some differences between each term.
Invoice vs. Bill
An invoice documents a sales transaction where the seller collects payment for products or services at a later date, often 30 days after receiving the invoice. A supplier may use “invoice” or “sales invoice” to describe a customer payment request. A bill refers to a document of sale wherein customers pay immediately. Customers may also use the term “bill” to describe a request for payment from their vendor. Bills are often less detailed than invoices and require immediate attention.
Invoice vs. Receipt
While sales receipts and invoices contain similar information, they are different. An invoice is issued to collect payments from customers, while a sales receipt documents proof of payment that a customer has made to a seller.
Receipts are used as documentation to confirm that a customer has received the goods or services they paid for, and as a record that the business has been paid.
- Parts of an invoice
- An invoice number
- Invoice date
- Business and customer contact information
- Description of goods and services
- Payment terms
Invoice number
An invoice number should be assigned to each invoice you issue. This reference number establishes a paper trail of information for you and your customers’ accounting records. Assign invoice numbers sequentially so that the number on each new invoice is higher than the last. Invoices aren’t necessarily due immediately when customers receive them. You may set invoice payment terms of up to three months to give your customers the flexibility to manage their cash. No matter what your payment terms are, express them clearly to your customer to ensure all parties are on the same page.
Date
The invoice date indicates the time and date the vendor officially records the transaction and bills the client. The invoice date is crucial as it dictates the payment due date and credit duration. Generally, the due date is 30 days following the invoice date, but this can vary based on a company’s needs and the agreement with the client or buyer. Invoices should also include a payment due date to indicate when the business expects to be paid. This date is usually 30 days after the invoice date.
Business contact information
Within an invoice, you must provide your business contact information, including name, address, phone number, and email address, along with your client or buyer’s information.
Customer information
Make sure you address your invoice to the correct person. Verifying their information can prevent costly errors and increase your chances of receiving timely payment. Include the customer’s contact information on your invoice, including their:
- Full name
- Billing address
- Phone number
- Email address
- Descriptions of goods or services rendered
You should enter every product or service you provide as a line item on your invoices. Include price and quantity for each line item. At the bottom of the invoice, add up all of the line items, and apply any tax charges.
Here’s what to include when listing products or services provided:
- The date you completed the service
- A description of services that specifies what you provided at the unit level
- How many units your customer ordered
- The rate per unit
- The total number of units
- The total amount due
- Amount owed
Your invoice should also include other relevant information about the total cost, including:
- Initial subtotal
- Applicable taxes
- Additional fees
- Discounts
- Any other factors that would affect the total cost