There are few documents more critical to small businesses than the invoice. Business owners will have difficulty running their business and making a profit without considering their invoicing system, especially if they offer a service. 

A company’s invoicing system serves as a tool to record how the revenue is appropriately collected in a small business environment. The invoice serves as a record of their client’s obligation to pay for the sales and services provided to them.

What is an Invoice? 

An invoice is a document that describes in detail the quantities and associated costs of the particular good or service for the buyer. The seller puts together the invoice and produces two copies: one for the business to keep and the buyer to have.

It’s considered a sales invoice for the seller, and they can expect to see revenue come in based on that invoice eventually. 

On the other hand, it’s considered a purchase invoice for the buyer, reflecting expenses incurred for their records. For a buyer, it represents an account they will have to pay to fulfill.  

1. What is the Purpose of an Invoice?

The invoice represents the buyer and the seller’s formal agreement about the money and services they will exchange. In that sense, it gives both parties assurance that the exchange will occur as planned. After the exchange has occurred, the invoice also functions as a record. 

For the buyer, invoices are a promise of specific services to be delivered at an established price. They are purchase orders that can be filed as an expense to pay. 

For the seller, the document is filed as a sales invoice and an account receivable. The sale has been made, and terms have been agreed upon. Business owners should expect to receive payment according to the invoice pricing and due date, assuming that they comply with the delivery promised on their end. 

2. What to Include on an Invoice

A complete invoice includes all pertinent information about the exchange, and the terms agreed to by the buyer and seller. An invoice doesn’t need endless details about the product itself, but it should be able to serve as an easy and convenient reference for both the buyer and seller to refer to later. Here are 10 pieces of information you need to be sure to include:  

1. Include the Business Name

As the business owner producing an invoice, you need to identify yourself and your business on the invoice clearly. Show your full business name and information, including your business address and contact information.

This is important for the buyer following through on the purchase, but it also ensures the buyer will have your information if they want to return to you in the future or recommend you to other potential clients. 

2. Don’t Forget Contact Information!

In the interest of making the invoice a simple, go-to reference document for both the seller and buyer, you should include contact information for both parties. 

Add your phone, email, and fax to the invoice, and include the buyer’s information as well. This lets the clients know how to contact you in case of any questions or discrepancies, and it makes it easy for you to reach out to them about issues as well.  

3. Stay Organized with an Invoice Number

Proper invoicing requires invoice numbers. As you get a lot of orders, this is a good way to be able to search for a specific invoice. An invoice reference number is a unique invoice identifier that aids in sorting and follow-up.

If you carry on a long-term business relationship with a client, you’re going to have a lot of past invoices that stack up over time. In order to properly address issues, you need to be able to refer back to specific invoices without any confusion. 

4. Outline the Payment Terms

Because the invoice begins its life as a promise and an agreement of how payment is going to occur, it’s essential that it includes clearly laid out terms of payment. 

Whether these terms are static or creative, they need to reflect the agreement between you and your customer. How much money is owed, and how is it going to be paid? 

5. Include the Due Date and Date Issued

As part of the payment terms, the invoice should lay out a clear timeline for payment. This means including the due date for the payment, but also the date that the invoice was issued and sent to the buyer. 

These two dates are linked in an obvious way. After all, a buyer can’t very easily pay what they owe until they’ve received the invoice that specifies how much they owe and how it is to be paid. A common agreement in invoicing is the net 30-day payment term. This gives the buyer 30 days from the invoice date to make the payment. 

6. Who is this Billed To?

The invoice should make it very clear who is ultimately responsible for paying this bill. Who exactly is being billed? If another business is the buyer, are you billing the company itself or an individual? 

7. Include All Relevant Details

The invoice should include details of the products or services being rendered. What are you selling? What is the client expecting, and how will the client know that your end of the bargain has been completed? 

You don’t need to include obsessive detail. Invoices should be neat, succinct documents without extra pages of notes. You should concisely but thoroughly describe the components of the service you provide, especially as it pertains to the price. If the buyer is paying an extra surcharge because of an upgrade or specific feature, that is important information to include here. 

8. Calculate Sales Tax

The invoice needs to include all information necessary for the buyer to make the payment. It should show the final price, including every fine, fee, and surcharge. You’re effectively promising to hold to the price you describe in this invoice. 

Goods and services are taxed, and the tax rate is dependent on the state. Show this on your invoice for transparency so that the clients are aware of this additional charge. You don’t want to give the buyer any unpleasant surprises. 

9. Were There Any Discounts?

Any promotional or agreed-upon discounts or allowances also need to be shown here in the invoice. This is where you follow through on informal agreements and promises regarding the price and include it here in the official terms. 

Name the price per unit and final amount due, including sales tax and applicable discounts and allowances. 

10. Final Notes

The invoice is about communication between you and the customer. Include in the notes any other details you want to provide the client for purposes of transparency. 

3. Easy Invoice Options

There might be a lot that goes into an invoice, but creating a great invoice is simpler than it seems. Many businesses find or buy invoicing software specifically for producing invoices quickly and uniformly. 

There are many ways to get started, however, even if you’d rather not pay for a specific invoicing program. 

Create with Google Docs

Using programs from Google Drive would be a quick and easy option for an online invoice. Google Docs includes sample invoice templates available to be used to turn a spreadsheet into a workable invoice for your business. 

Use a Free Generator

Elsewhere online, you could also find a free invoice generator using invoice templates that will fill in the invoice for you as you input your data. 

Take your time to explore your options and find free invoice templates that work well for your purposes. A good program will have fully customizable templates professionally designed to be simple and effective. 

Microsoft Word

Many businesses rely instead on Microsoft Word for their templates and invoice editing. This is an easy, accessible option for business owners hesitant to try out invoicing software online. 

4. Have a Late Payment Plan

When you issue an invoice, you hope and expect the buyer to pay promptly according to the laid out payment terms. However, you also need to have a plan for how to deal with late payments, and the customer should be aware of your policy. 

Your invoice needs to include all the fine print and payment expectations clearly, and there shouldn’t be anything significant in there that the buyer wasn’t already aware of. Whether your invoice deadline is net 30 days or follows some other payment terms, you need to communicate clearly about any applicable late payment charges.

For clients that might struggle to make the whole bill, you might also offer an option where a client can pay in installments over time. To make things easier on your clients and ensure better client retention, you should let all your clients know about any multiple payment options you offer, even if you’d much rather them make single, one-time payments. 

5. Keep Your Invoice Records

Invoices are an effective tool for billing clients and managing account payments, but they are also tremendously helpful as records. Maintaining a well-organized file with your invoices and estimates is a crucial part of record-keeping for small businesses

Promptly file your invoices and keep them organized. If you procrastinate, your records will fall behind, and they won’t be as useful for financial planning or filing your tax return. 

You should keep files in chronological order and consider using software that syncs with the cloud to help you with storage and sharing. Then multiple people can access them simultaneously and upload new files directly. 

6. Work with an Accountant

Invoices are essential. No matter how much passion you have for your work, you’re not going to have a sustainable business or healthy cash flow if you don’t get paid. If you’re getting ready to start a business now, make efficient accounting and effective invoices a priority from the beginning.

Don’t be afraid to seek out help as you start putting together invoices and figuring out your work processes. An accountant, or better yet, an accounts receivable specialist, can help organize your invoices and records so that it takes less time out of your busy day. 

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Written by Rudy Robles

Rudy Robles is the Bookkeeping and Payroll Supervisor for the Eastern Team at 1-800Accountant. Prior to 1-800Accountant, he's worked in vari...