What Is an Invoice?
An invoice is a document that lists the products and services a business provides to a client and establishes an obligation on the part of the client to pay the business for those products and services. Invoicing is crucial for small businesses, because invoices are the business documents that enable companies to get paid for their services.
Invoices serve an important purpose for both the business sending the invoice and the client receiving it. For small businesses, an invoice helps expedite the payment process by giving clients a notification of the payment that’s due. For clients, invoices provide an organized record of an expense with itemized details, and can help with record keeping.
These topics will help you understand what an invoice is so you can create small business invoices:
What Is the Definition of Invoice?
The term invoice is defined by the Oxford English Dictionary as “a list of goods sent or services provided, with a statement of the sum due for these; a bill.”
Invoices are the backbone of the accounting system for small businesses. An invoice tells your client how much they owe you, when the payment is due and what services you provided.
What Is an Invoice Used For?
Invoices are used as a source document for business accounting. Invoices are helpful for recording all the sales transactions a business makes with its clients. Invoices are used by businesses for a variety of purposes, including:
- To request timely payment from clients
- To keep track of sales
- To track inventory, for businesses selling products
- To forecast future sales using historical data
- To record business revenue for tax filings
What Is an Invoice ID?
An invoice ID, also referred to as an invoice number, is a unique number that’s assigned to each invoice a business generates. The invoice number is a crucial invoice element because it allows a business to easily identify and refer to individual transactions with clients.
An invoice ID can include both numbers and letters. While invoice don’t necessarily need to be numbered sequentially, you’ll need to establish a consistent invoice ID system and ensure you don’t assign an invoice number more than once.
How to Assign Invoice Numbers
There are different approaches businesses can adopt to assign invoice numbers. Here are some common approaches to assigning invoice numbers:
This is the simplest way to assign invoice numbers and is the default method adopted by most cloud-based invoicing software. To assign sequential invoice numbers, you would start with any number (usually 1) and assign each proceeding invoice the next number in the sequence. For example:
Sequential invoice numbers make it easy to stay consistent and ensure you’re never assigning duplicate invoice IDs.
To assign invoice numbers using the chronological method, you will sort all invoices by the date they’re generated.The first series of numbers in the ID will therefore always refer to the date. After the date, your invoice number will also include unique numbers assigned to that invoice. You can use any date format you like for chronological invoice numbers. For example, if an invoice is created on September 30, 2018 and the unique invoice number is 0022, you could assign this number to the invoice: 2018-09-30-0022.
By Customer ID
Some businesses assign unique customer IDs to each of their clients, and you can use the customer ID to assign invoice numbers. The process for assigning invoice numbers by customer ID is similar to the process for chronological numbering. The invoice ID will begin with the customer ID number and then a unique number will follow. For example, if you’ve assigned your client a customer ID number of 490 and the unique number you’re using is 004, you can use the customer ID approach to assign an invoice number of 490-004.
By Project ID
If your business works on a number of projects at a time and you bill clients by project, then you may wish to assign invoice numbers by project ID. This method is common in the construction industry. To assign invoice numbers by project ID, the first part of your invoice number will refer to the project ID and the second part will be a sequential number to differentiate between different invoices issued for this specific project. For example, if you were creating an invoice for your project 6221, you could assign your first invoice number for the project as 6221-001.
What Does an Invoice Look Like?
A professional invoice will look clean, readable and simple while providing all the details on the services provided and the payment required by the client. A professional invoice should always include:
- Your business contact information
- Your client’s contact information
- An invoice ID or invoice number
- Payment terms and deadlines
- An itemized list of services rendered
- The amount due
Are you looking for design tips to help you create a professional-looking invoice that stands out? Check out this small business guide on how to design invoices.
How Do I Invoice Clients?
To invoice your clients, you should create and send an invoice as soon as you’ve completed work on a project. That way, the details of the work will be fresh in your mind and you should receive payment as quickly as possible. Make sure your invoice includes all the details your clients will need to pay you, including your business name, the invoice due date and the total amount due.
Need more help? Here’s a complete guide on how to make an invoice to get paid faster.