What is an invoice?
An invoice is a written agreement detailing a transaction between a provider of products or services and a customer. It outlines the payment details and expectations, from partial to full and specific due dates or period of time. Synonymous terms include sales invoice, bill of sale and contract of sale.
What you need to include on an invoice
The following items are requirements for all invoices:
Customer’s details: The customer’s name and/or business’s name, email address, phone number and sometimes physical address.
Business’s details: The business’s name, the name of the person sending the invoice and requesting payment, email address, phone number and physical address when applicable.
Date: The date that the invoice is issued. It is important to include this information as the terms of service usually refer to a deadline in relation to this date (e.g., 30 days from issue date).
Invoice number: A specific number for each individual invoice allows the business providing the service or goods to differentiate and identify this document from others like it.
Description of products or services: A short product description of the customer’s purchases, including prices and quantities, with each item listed on a separate line.
Total cost: Beneath the purchases, include a sum amount for the outlined item(s) plus shipping and handling and taxes.
Legal terms: It’s very important to include the terms of payment (i..e, net 30 days), terms of shipment and delivery, terms of cancellation, and any other legal terms the provider wants to include.
What is an invoice used for?
An invoice is a record of sale created by a business which is used to request payment for goods or services purchased by a customer. Both businesses and customers can also refer back to an invoice at any time to verify the dates, price and other terms of agreement.
Beyond receiving payment, the purpose of this document is mainly for tracking and accounting purposes, by allowing the business to keep records of its sales. For example, once an invoice is sent, the business will record the transaction as ‘accounts receivable.’ Then, when creating budgets and financial statements or filing and paying taxes, the business will have proof and organization of every component of their income.
When starting a business, factoring in how you will create and send invoices, is an essential part of your bookkeeping planning.
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The difference between an invoice and a price quote or purchase order
Both price quotes and purchase orders are sent before an agreement is reached and come with no obligation to pay. An invoice is sent after the details of the service or product are agreed upon and is generally considered a binding contract of payment.
The difference between an invoice and a bill
An invoice can be sent at any time after the sale is agreed upon, but commonly sent with the delivery. Payment is then usually expected for a date in advance, such as 30 days.
A bill is for more general purchases, such as retail items at restaurants and clothing stores. Bills require immediate payment most of the time.