Making accurate and professional invoices is an integral part of running any business. It is also the area where many early-stage teams lose time, introduce errors, or do both and end up in closure.
Regardless of whether you are a founder, operator, or member of the finance department, it is essential to understand how to create an invoice on a solid foundation. It helps ensure consistent cash flow and also strengthens client-business relationships.
Understanding an invoice
An invoice is also commonly referred to as a bill. It is a document issued by individuals, businesses, and other entities to request payments from clients.
This document outlines the client’s purchase and payment preferences. It also has the following details:
- Name (individual, business, or another entity).
- Contact Information.
- A description of the goods/services purchased/sold.
- The prices.
- Other payment details.
Contrary to common belief, there is a difference between an invoice and a bill. The former is a document asking for payment, whereas the latter is a document that proves that a payment has already been made.
For instance, those who are shopping for groceries get a receipt from the supermarket. They pay for that at the final checkout counter either with cash or a card. Similarly, if an electrician does work at the home or office, they provide a bill of lading for the work they have done (and which customers need to pay).
The payment method can be an online transfer via a banking app, a payment made via PayPal, or made in cash.
The Essential Components of One
Irrespective of the industry or scale, each bill of lading must have the exact essential details. Each client visit helps improve consistency. It helps the finance division track and reconcile all payments effectively. Here are its essential components:
- Header: Clearly label the document as ‘Invoice.’
- The Business’s Information: This should include the name, address, email, contact number, and logo (whenever applicable).
- Client Information: It should consist of the company’s name, contact person, billing address, and email (contact number if needed).
- The Invoice Number: What is invoice number? It comprises a unique ID for internal audit and tracking purposes.
- The Date and Due Date: It shows when the bill was issued and the date of expected payment, too.
- Itemized Breakdown: The list of products/services delivered with quantities, rates, and cumulative total.
- Subtotal and Taxes Applicable: A subtotal, applicable taxes, plus applicable discounts, should be mentioned.
- Total Amount Due: It is the final amount payable (i.e., to be paid).
- Payment Terms: Payment methods that are accepted, including due dates, plus any late fees or early payment discounts, should be mentioned.
- Any Optional Notes: Any space for project codes, internal PO numbers, or a brief note of thanks can be added if needed.
Most of these fields are generated and processed automatically using invoicing software. Such software helps create a digital invoice without manual errors and in the best possible time frame too.
Different kinds of invoices
Let us now briefly discuss the various types of bills of lading and manifests present.
| Name | Nature |
|---|---|
| For Sales | It is used for requesting payments from clients. |
| Proforma | A preliminary bill of lading helps confirm the details of a sale before any goods/services are provided to buyers. |
| Recurring One | They are issued regularly (like monthly or annually). |
| Past due One | When payments are not made on time, businesses can resend statements to clients. It can include additional charges. It should be mentioned in the contract, on the proforma bill of lading, and on the original one too. |
| Credit Note | This is used to void the original bill of lading, often due to errors on the original one. If clients are sent a bill of lading with the wrong amount, the business must first credit it, and then send the client the credit note to prove the original one is void. Then another bill of lading should be issued with the correct amount. |
Tips on making a worthwhile one
Understanding tips on how to make a business invoice requires an understanding of the key components. Whether it is being done manually from scratch, with a template, or through software, here are some essential tips to follow:
Selecting a Format
Starting with a clean bill of lading template, software, or a spend management platform works. The objective is consistency with each one sent having the same structure.
Entering the business and client details
The business’s name, company name, contact number, key information, name of contact, and address, followed by the client’s billing details, should be added. It makes it easy for both sides to help reconcile payments and match the purchase orders, too.
Assigning it dates and unique numbers
Using a unique bill of lading number, along with the date of issuance and due date, works. It helps with tracking and ensures everyone is aligned on timelines.
Adding an itemized list of charges
Using clear spaces to detail line items with descriptions, quantities, plus hourly rates or unit prices, helps in the proper breakdown of items. This streamlines approvals and eliminates back-and-forth.
Do not forget to add any taxes, discounts, plus the total amount
Apply relevant sales taxes, service fees, or discounts (or all that apply). Afterwards, calculating the total due amount works wonders.
Defining clear payment terms
It is wise to be specific about accepted payment methods (bank transfers, debit/credit cards, PayPal, etc.). If early payment discounts, late fees, or purchase order references are offered, add them to the bill as well.
Reviewing and Sending it
All fields need to be double-checked for accuracy and relevancy before sending. Invoicing software helps in this area as it automates the process, removes manual entry, and works at scale with total efficiency.
Conclusion
Making an invoice is a straightforward process. It requires a thorough understanding of all components involved, so an accurate one is created and sent to clients. Companies can utilize a bill creation software to automate the process, reduce errors, and generate billing statements that are straightforward & seamless.
