Introduction to Invoicing
What is Invoicing?
An invoice is any document that lists the services and products that your business offers clients with the intention to establish an obligation for the client to pay for the products and services rendered. Invoicing is an important concept especially for growing businesses, as an invoice template act as the most important business document that gets companies paid for their services.
Many companies employ invoice templates when getting started with invoices. These templates are time savers since you don’t have to repopulate the same details whenever you make an invoice. If you wish to learn more about this, MixBit.com is an invoicing software that is new on the market and ridiculously intuitive.
Invoices are very important for both the business and the client. Small businesses use invoices to expedite payment by notifying the client that payment is due for a particular service provided. For clients, an invoice is used to record and organize expenses with itemized details.
The topics discussed below go into the details of all you need to know about what an invoice is, how to create it for small businesses, and general information on invoicing beat practices.
The Oxford English Dictionary defines an invoice as a list of services provided or goods sent, with a payment statement i.e a bill. Invoices can best be described as the backbone of the accounting system for emerging companies. An invoice informs the client of their bill, the due date for payment, and the particular service that warranted the bill down to the littlest details.
Basics of Invoicing: Mastering The Process
Invoices are used as the base document for accounting in business. Invoices can be extremely useful for recording all transactions a business broker makes with a client. Many businesses use invoices for a variety of reasons, including:
- To keep track of sales
- To record business revenue
- To track inventory for products
- To ask for payments in a timely fashion
- To predict potential sales using historical data
What Is an Invoice ID?
Also known as the invoice number, the invoice ID is a number unique to each invoice generated by a business. The invoice ID is a significant invoice excellent because it acts as identification to pinpoint individual transactions with customers.
It can include both letters and numbers. While an invoice doesn’t require the invoices ID to be numbered sequentially, it is advisable to employ a consistent invoice ID system to avoid issuing the same invoice number multiple times.
How Can I Assign Invoice Numbers
There are many approaches that businesses use to assign invoice numbers. Among these approaches, the most common are::
A sequential process is the easiest way to assign invoice numbers. It remains the default option used by the majority of cloud-based invoice software vendors. To use the sequential process, you need to start with any number and then assign the best number in the sequence for future invoices. A good example is this:
- Invoices 001
- Invoices 002
- Invoices 003
Assigning invoice numbers in the sequence is a consistent way to create new invoices, without the fear of assigning duplicate invoice numbers.
The chronological method of assigning invoice numbers involves sorting all invoices according to the date they were generated. The first set of numbers of the invoice ID must always refer to the date. Next, the invoice number will include a unique number specific to that particular invoice. Any date format is accepted for chronological invoice numbers. Say, you generated an invoice on February, 17, 2020, and the unique ID is 0098, your invoice number should look like this: 2020-02-17-0098.
By Customer ID
In some cases, certain businesses attach a unique customer ID to every client, hence, you can assign invoice numbers to the customer ID. Using customer ID process is similar to chronological numbering in many aspects.
In this case, the invoice ID starts with the customer ID number, and then the series of unique numbers follow suit. For example, if the customer is assigned a client ID number of 057 with a unique number of 003, the customer ID process for an invoice ID number will show the ID as 057-003
By Project ID
If your company caters to different projects at the same time and you work with clients on a project basis, then it is smart to use project ID to assign invoice numbers. Many businesses in the construction industry employ this approach when accounting for payment.
To use project ID to assign invoice numbers, the beginning of your invoice number will be the project ID while the latter part will be sequential to differentiate between invoices for the same project.
For example, if you have a project ID 6221, and you need to create an invoice, the invoice number should be 6221-001.
What Does an Invoice Look Like?
A standard invoice looks simple, readable, and easy to understand while providing specific details on the service rendered and the amount to be paid by the client. A standard invoices must include the following :
- Business contact details
- Invoice number
- Owed amount
- Itemized list of services or products delivered
- Client contact information
- Payment method and deadlines
Why Send Invoices?
An invoice is a good day for vendors, small businesses, and freelancers to bill clients for service rendered.
It is crucial for businesses to keep records of sales for protection and record keeping purposes. Below, we have highlighted the most important reasons why you need an invoice:
- Record Keeping
Record keeping is the most basic use of a sales invoice. A sales invoice can be used to track the delivery date of goods sold, the amount paid, and if there is any outstanding debt. In accounting, an invoice plays a crucial role in tracking employee sales and income.
- Tax Purposes
The government doesn’t operate a fixed template or system regarding the type of invoices a business should use. For tax purposes, it is crucial to maintain and record all sales invoices. The IRS suggests that small businesses keep an active summary of all transactions, which invoices are a significant part of.
This will help the company when it is time to file taxes, ensuring the correct amount is paid and eliminating any chance of an audit.
- Legal Purposes
Invoices can be a protective measure against civil lawsuits and fraudulent scams. An invoice proves that a specific good or service was delivered at a certain time. A customer’s signature on the invoice can come in handy, in the event of a disagreement between the vendor and client. An invoice proves the sale occurred and provides specific details regarding pricing and delivery.
- Marketing Purposes
A business owner that uses invoices can utilize sales data to target the company’s customer base. A good example is when businesses include data such as products sold, date of sales, and the price of goods sold. Marketing firms or computer programs are adept at curating these information to identify peak purchase periods, earning trends, and popular products. This is useful for creating business marketing strategies.
Do Invoices Need an Invoice Number?
Yes, it is necessary for invoices to have an invoice number. Clients don’t see the importance of invoices without numbers, as it won’t be useful when they have to track payments with it. This means a vendor will have to reissue the invoice.