How to write an invoice

Accepting online payments for goods or services is what makes businesses survive and thrive. In our modern world, sole traders, VAT registered businesses, and other types of business owners use invoices as official documents to provide payment terms to their customers. Invoices are usually sent to a customer once a service job is completed.

An invoice includes information about the products and services provided, how much the customer owes, the due date for the payment, and how the customer can pay you. If you have just registered your business, you will want to know how to write an invoice correctly to present your business professionally and ensure you get paid.

This article explores the purpose of invoices, discusses the importance of an invoice number and looks at the different types of invoices and who can issue them. It also offers a step-by-step guide on how to write one and a lot more.

Keep reading to get the full picture of what it takes to write an invoice.

What is the purpose of an invoice?

The purpose of an invoice is to present all the necessary payment information in a simple and easy-to-understand format to your customers about the service carried out for them. In other words, it spells out what the customer owes you and what they need to pay you.

It is often presented in a formal and official document that forms part of your business’ invoicing process. It creates an obligation for the customer to pay you, and it can serve as grounds for legal action if your customer doesn’t pay you as you approach debt collection to access your payment due.

What is an invoice number?

An invoice number can be fully numerically or alphanumerically expressed and has a predetermined sequence. You should issue a new invoice number to every client you serve, which should not be repeated on invoices.

Each invoice number should be unique and placed on your invoice. It will help you keep track of multiple invoices sent. It will also help your customers pay you by referring to the invoice number when they make a payment so that there is no confusion or mix-ups between different customer payments.

A few reasons why you need a unique invoice number for each invoice include the following:

• They help you stay organised, especially if you issue multiple invoices on any given day.
• They help with payment tracking and following up on unpaid invoices.
• They add professionalism to the invoice, indicating that your business follows best practices.

In short, preparing professional invoices is a great way to keep your business payments flowing smoothly, as opposed to experiencing bottlenecks with lost invoices, unpaid invoices or dealing with multiple invoices at the same time.

Types of invoices

Large and small businesses must issue invoices. However, how do you know which type to use in every use-case scenario?

Below, we outline the different types of invoices to help you issue the right one every time:

• Sales or purchase invoices: Sales and purchase invoices are created for sales and purchases. If your business makes a sale, you will send out a sales invoice to your customers. If it receives goods or services, you will receive a purchase invoice from the other contracting party.
• Tax invoices: These invoices allow business owners to charge VAT for their goods or services and reclaim them later.
• Commercial invoices: Businesses that deal with international trade often issue commercial invoices. These invoices serve as a legal and binding document when goods are shipped abroad. Their terms cannot be changed unless they expire.
• Pro forma invoice: This type of invoice is usually sent to customers before the service is provided. It sets out the estimated cost of the work to be done. Important to note is that it is not a legal record of a sale and that it can be altered to reflect the final costs with greater accuracy.
• Recurring invoices: In this case, a recurring invoice is sent to the same customer at regular intervals. Their payment amount typically is the same every month. This type of invoice is great for subscription services.
• Interim or progress invoices: These are issued to customers for large projects with a longer time frame. They are sent regularly in increments, and each interim invoice is based on the initial project estimate.
• Final invoices: The final invoice follows on from interim or progress invoices. It is issued once all the work on a project has been completed. It is also the last invoice to be issued for the given project and is usually more detailed.
• Past due invoices: These are issued when a customer’s payment due date has passed. In essence, they are overdue payments. In such cases, businesses may be entitled to charge interest or late payment fees.
• Credit invoices or memos: These are issued when goods are returned, or a customer is overcharged. In short, they are refunds or credit notes, and the amounts on the invoice are expressed negatively.
• International invoices: If your UK business does business in another country, you may need to issue your invoice in a foreign currency or language. You should also indicate the VAT payable. An English version of your invoice should be available in case a VAT officer inspects it.

Depending on your business’s operating environment, these are just a few of the invoice types you could use.

Who can issue an invoice?

A number of different business entities can issue invoices.

They include the following:

• Sole trader invoices: Sole traders must include their name on the invoice, the business name used for trading, and the owner’s or business premises address.
• Limited company invoices: The criteria for limited company invoices include the full company name, the registered office address, the registered company number on your certificate of incorporation, and the names of all the company’s directors (if applicable). 
• VAT-registered invoices: If you run a VAT registered business, you must produce and keep all copies of each VAT invoice you’ve issued. It includes invoices that were created or cancelled by mistake. In general, there are three types of VAT invoices for these businesses.
  
  The first one is the full version, which is used for all supplies and amounts. The simplified version is used for all supply and retail supplies under £250. A modified version is used for retail supplies over £250.
  
  It is important to note that you are not required to issue a VAT invoice if the goods are exempt or zero-rated. Furthermore, VAT invoices are generally provided within 30 days of delivering goods or services.

Therefore, based on the above, every business owner should issue invoices. However, the details on each invoice will differ, depending on the nature of the business and the type of goods or services sold or rendered, respectively.

How to write an invoice: A step-by-step guide

When you write an invoice, it’s recommended to use an invoice template to standardise your invoice-making process and create a professional and trusted appearance.

Personalise and make your invoice professional

You may think that invoices are only formal documents for when payments are due, but they are also an opportunity to showcase your business branding. So, whether you are using Google Docs when sending invoices or specialised software, make sure to include your business logo in a visible manner and be consistent with its use.

Another way to personalise your invoice is to write a short note to your customer at the bottom where you thank them for choosing your business or offer them a discount for referrals.

Include company and customer information

Once you have added your logo, branding, and personalised message, add your company details to the invoice. This will include information such as your company name, business address, and contact details. You should also have a recipient for your invoice, which can be an individual or your customer’s company. Be sure to include their names, addresses, email addresses, and telephone numbers as well.

Add a unique invoice number, an issue date and a due date

Every professional invoice should feature the invoice date or the invoice issue date. It is the date on which the invoice was created. You should also add your unique invoice number and the supply date when goods were sold or services were rendered. You should also feature a date when the invoice expires, which can be in 14 days, 30 days, or a time you determined and of which the customer is aware.

Write each line item with a description of services

A small business owner should also detail the work that was carried out on the invoice to invoice properly and collect payments. It means to indicate every single product or service sold with a detailed description of each one.

These are called line items, and each should appear on a separate line in the body of your invoice. If you charge in terms of quantities delivered, these should be specified. If you charge on a per-hour basis, you should indicate how many hours were spent on delivering the service.

Add up line items for the total money owed

Each line item should have an associated cost. This monetary amount should appear on the right-hand side of your invoice and then be tallied up to give you the total that your customer owes you.

When you add up each of your line items, you should also add any discounts offered and the VAT rate. Only once you have considered the discounts and sales tax can you calculate the total amount due.

Include your payment terms and payment options

Finally, you should include your payment terms and the different payment options you offer. These can include cash payments, credit and debit card payments, payments made via a digital wallet, etc. Regardless of the payment method you choose, you must ensure that your customer’s payments enter your bank account.

That’s why you should offer customers the ability to pay online by bank transfer when you provide them with your bank details as well. Sharing these payment details can go a long way to securing your cash flow.

All in all, these are the six key steps to creating a professional-looking invoice. Suppose you want to keep your invoices organised. In that case, you may consider using invoice software that offers free invoice templates and a free invoice generator, just like the online invoicing software offered by myPOS.

Best practices for invoicing

Sending multiple invoices at the same time can affect your ability to invoice effectively, especially if you do not use the right online invoice generator that comes with a variety of free invoice templates.

However, using the right invoicing software and free invoice templates can help your business grow.

Here are a few additional best practices to follow when writing an invoice:

• Proofread and check your invoice for errors. Pay specific attention to ensure the accuracy of each line item, its amounts, and the total value of the full invoice.
• Set up automatic payment reminders. It can save you a lot of time spent on manually chasing overdue payments or missed payments.
• Offer discounts for early payments. This is a great way to incentivise your customers to pay their invoices on time. 
• Use free invoice templates to create consistency and professionalism across every aspect of your business.
• Use a business email address. If your business sends email invoices, be sure to use a business email address when you attach invoices to appear more credible. It’s also a way to provide instant recognition of your business.
• Keep track of all your invoices in one place. Invoices can add up quickly, and you need a centralised document management system that allows you to easily organise, store, and access them. 
• Don’t be afraid to follow up with a customer if you have sent unpaid invoices. You should have a system where you keep track of their payment status and ensure that your invoices are accurate to ensure fewer disagreements.

Following each of these best practices will help ensure that you get paid faster and that you minimise the number of late payments.

Benefits of invoicing software and why your business needs it

Using invoicing software to streamline, organise and keep your invoice records updated and easily accessible is an excellent way to receive payments due on time, every time. With myPOS, you can create one invoice example and use the template for all your future invoicing needs. It really is that simple.

Final thoughts

Receiving payment directly into your merchant account once you’ve provided goods or rendered services to your customers is highly rewarding. However, you need to ensure that you keep track of all incoming and due payments so that your business’s cash flow remains robust. For this reason, you will want to ensure that you use the right invoicing software and templates and follow established industry best practices.

Frequently Asked Questions

What are some of the most common invoice payment terms?

Examples of common invoice payment terms include: “Payment due within 30 days”, “Payment in Advance” (PIA), “Net” (N), “End of Month” (EOM), “Month following invoice” (MFI), “Discount”, “Sta”e payment”, “Bank t”transfer”, “Cash” etc.

Can an invoice be handwritten?

Yes, it is possible to write a handwritten invoice. However, it must be legible and include all the necessary information detailing the job and the amounts due, as well as the payment date and payment methods.

Does an invoice need a logo?

While adding your business logo to your invoices is unnecessary, it can add a more professional appearance to your invoice.

How can I write a simple invoice?

For writing a simple invoice, make sure it contains the following basic information:

• Your and your customer’s names and contact information;
• The invoice number and issue date;
• The payment due date;
• Line items of services or products you’ve provided (including the costs and quantities of each one);
• A subtotal of the line items;
• Add VAT and or discount rates;
• The total amount that’s owed with a description of how payment should be made.