Invoices
An invoice is by far the most important document for your business. On the one hand, it can serve as proof that you’ve delivered a service or product, on the other hand it ensures that you get paid for it. Although an invoice in itself offers no guarantee in that area. Did you know that 1 in 10 invoices is paid late? Or that businesses lose 2.6% of total yearly revenue on unpaid invoices alone?
This, in turn, can cause serious financial problems. Because money that your business doesn’t receive on time, is money that you obviously can’t spend (or invest) yourself. That’s why we wrote this handy guide. To help you draw up the perfect invoice, and to show you exactly what invoicing is all about.
Purpose of an invoice
1. Get paid for your work
For each invoice you send you’ll receive money, helping you keep your business up and running.
2. Know your numbers down to the smallest detail
Keep track of your inbound and outbound invoices in one system to know exactly how much you earn and spend. This also drastically simplifies your tax return.
3. Be transparent about the products and services you charge for
Give a clear overview of your services and products, allowing your customer to know exactly what they pay for. This will also save you time and helps to avoid misunderstandings.
4. Brand your business
An invoice is the perfect way to build the image of your company. Stand out by adding your logo, important business information and a link to your social media channels.
Terms and conditions
Many businesses choose to include their terms and conditions on the back of an invoice. This is not a legal obligation. In fact, attaching your general terms and conditions to the invoice will in most cases lead to discussion. Both consumers and professional customers can state that they should have been able to go through these terms and conditions earlier and that, consequently, they do not apply.
That is why you should always communicate your terms on your quotation (before the product/service has been delivered). For B2B transactions, referring to the terms and conditions on your website will also suffice. This does not apply to B2C transactions: here, you will need to add your terms and conditions to your quotation.
Note: it’s always a good idea to once again mention your terms and conditions on your invoice, but make sure the content corresponds with the terms and conditions in your initial quotation. This will help avoid any unclarities and debate as to which terms apply to that specific transaction.
Different types of invoices
Standard invoice
A basic format for an invoice that includes all the basic information and can be used for different business transactions by multiple industries.
Use: very common
Commercial invoice
Special invoice designed for foreign trade such as a shipment of goods from one country to the other. It contains contact details of the seller and buyer, items sold, cost of items and tax payable. It also has special attributes such as carrier identification number, country of origin, harmonised code for each items and a declaration that the invoice is authentic.
Use: less common, for customs declaration when a product is crossing international borders
Progress invoice
Invoice sent from time to time to show the progress of a large project and quote an amount to be paid because the company has to pay the employees working for them during the works.
Use: commonly for the construction industry for works that extend over a long period and are also very expensive (e.g. constructing a house)
Timesheet
Special kind of invoice preferred by service professionals who charge based on time and typically mention time instead of product.
Use: for service-driven intellectual companies (consultancy firms) who offer services based on time
Recurring invoice
These are invoices with a fixed rate that are usually delivered at the end of each month.
Use: typically used in the rental industry (e.g. for tools, space)
Pro forma invoice, quotation, quote or estimate
Invoice that gives an idea to the buyer abouts the cost of products and services and can be typically used as a commitment by the seller to deliver certain goods or services at the estimated price. It can also be an advance payment against the estimated project amount.
Value-based billing
Billing based on the services provided to the client and the value of those services. The invoice amount depends on the amount of work delivered to the customer rather than the time it takes to complete a project.
Use: when the value of a service or product can be determined beforehand
Fixed-bid billing
Billing best suited for projects with well-defined requirements to quote a fixed price for a project.
Use: small businesses or freelancing services
Time-based billing
Billing based on an hourly rate and the amount of hours worked on a project. The golden rule of time-based billing is not to undercharge for your services.
Use: creative jobs in which you’re not sure how much time it takes to complete a project
Creating invoices in Word or Excel
1. Open Word or Excel and select ‘New File’ (‘File’ → ‘New’).
You can start from scratch and choose your own layout, or select one of the predefined templates, i.e. ‘Invoice’ or ‘Commercial invoice’.
2. Enter your company information and the products or services you provide.
3. Enter your customer’s information, the invoice number, the date and possibly a subject.
Make sure you don’t forget any legally required elements!
4. Add the totals and check the amounts.
5. Save the file, send it to your customer and save it (if applicable) in your bookkeeping software.
The benefit of Excel is that you can use formulae to calculate totals or the VAT due. If you always use the same template, you don’t need to recalculate these amounts every time.
Once your invoice has been drawn up, you can print it and send it by post, or online through e-mail.
E-invoicing
“Italy is the first EU member state to introduce mandatory B2B e-invoicing. Other countries such as Spain, Greece and France have been rumoured to follow soon."
Keep in mind that consumers can always refuse electronic invoicing for now. If customers prefer a paper invoice, it should not cost anything extra - businesses are not allowed to raise the price of products or services because their customer refused an electronic invoice. You could, however, offer a special discount to customers who choose electronic invoicing.
If you do decide to adopt e-invoicing, however, an important question remains: why choose an online invoicing tool over tried-and-tested tools like Word and Excel? Well: as they were not designed as invoicing tools, you’ll soon discover their downsides:
- Following up on invoices and payment reminders
- Any subsequent invoices you make and the manual work they entail
And those templates in your own house style that you created in Word or Excel? Invoicing software allows you to import those in a few clicks.
Example of an invoice
Looking for some good examples of an invoice? This website has some great examples that you can get started with right away!
Disclaimer
The information contained in this page is provided for informational purposes only, and should not be construed as legal, fiscal or financial advice. Bear in mind that invoicing legislation is subject to change and may be different in your country of residence.