Chapter 11

A Step-by-step Process to Read an Invoice

Author: Bhaval Patel

How to Read an Invoice: Top 5 Essential Things to Check for in an Invoice

Every invoice has templates that divide one section from another. To pay your invoice, the department responsible for payment will have to look at the right things before approving and processing your payment. Here are the 5 essential things to read an invoice:

  • The supplier’s Contact Information
  • Purchase Order Number
  • Invoice Number
  • Pricing and Description
  • Payment Terms

Essential Things to Check for in an Invoice

The Supplier’s Contact Information

The supplier’s contact information includes the correct supplier’s name, their company name and address, email address, and phone number. These details should be written in clear fonts. If any of this information is missing, payment can be delayed.

Purchase Order Number

When an invoice is sent to a customer or a company with a purchase order number, this means the customer or company has already approved the transaction they are being charged for.

When the right department in charge of payment sees the purchase order number, they detach the original purchase order and compare the details to ensure it tallies with that on the invoice.

Not all companies use a purchase order number; it is only needed when making large and expensive orders. A company may set a rule that all orders above $5,000 will have an approved P.O. number in advance.

Invoice Number

An invoice number is used for reference purposes, sometimes for pending payment. The supplier is responsible for assigning invoice numbers to their invoice.

An invoice number will assist both the supplier and the customer. Once the customer makes a payment, they can proceed to close the purchase order, meaning that the order is closed and the transaction has been completed.

When the supplier of goods gets paid for an invoice, they can reference the invoice number to keep a record of the invoice that has been paid, after which the transaction becomes closed. A supplier who works for the same customer will need to assign the invoice number to help follow up on paid and unpaid invoices.

Pricing and Description

This aspect clarifies the customer on the services or products that have been discussed when negotiating and the agreed price. The information should not be altered from that of the purchase order.

An alteration on the invoice doesn’t necessarily mean the payment cannot be approved. If a customer changes their mind halfway in the business, their accounting department will notice the change in the purchase order. If the difference is not too much and the customer has already approved and signed the invoice before sending it to the accountant, the invoice will be paid.

An explanation for every cost you’re requesting in the invoice is also necessary. Assuming a customer wants to know how much they spent on a particular service after a long time. They can trace back the invoice and see how you have explained the cost. You have to detail your invoice to the customer so they don’t encounter much stress finding the invoice.

Payment Terms

Payment terms are made for notifying the customer of the time you as the supplier is expecting your payment. Sometimes you find phrases like “net 60 days” or “payable upon receipt.”

Some payment terms can be confusing, especially when the customer has their own time of payment, and it does not agree with that of the supplier.

For example, Jack is the owner of a landscaping company in Florida. He sends an invoice to a large car dealership being the first of his invoice as the business owner and adds a payment term of “net 30 days” to the invoice. But this conflicts with the car dealership who pays invoices every 60 days. Jack is unaware of his customer’s payment terms, and he phones the company after his payment date is due.

The supplier of services and the customer working for the first time should always reach a payment agreement between themselves. If Jack was aware of their car dealership payment terms, he’d have demanded an upfront payment of maybe 35% of the total amount before he starts the job.

In this case, he’ll have to prepare two invoices. One for the initial 35% upfront payment and another after his job, for the 65% he’s yet to receive.

Payment terms also inform the customer of what preferred payment methods the supplier of service accepts.

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