An invoice is a document that is always drawn up by the seller and sent to the buyer. The document contains a record of goods, their quantity and the price at which they were delivered, formal features of the items (color, weight), delivery conditions, information about the sender and recipient, their bank details.
What are invoices for? First of all, protecting the interests of the seller and the buyer, determining the number of customs duties, ensuring the settlement of the buyer with the seller. The invoice testifies to the fact of shipment of the goods and the obligation of the recipient of the goods to pay following the agreements spelled out in the contract (except situations with an advance payment).
It is used as the main piece of evidence in litigation with counterparties and regulatory authorities. Therefore, it is necessary to know how to make an invoice correctly as the preparation of this document must be approached with all responsibility.
Sometimes, a proforma invoice is drawn up. This is a preliminary document that allows verifying the specifics of the transaction: a cost, quantity, or a list of services. Either party can make adjustments to the proforma invoice and after the final agreement, a commercial invoice or simply an invoice is drawn up. Although the proforma invoice contains the price and the total transaction amount, it is not a payment request document.
What should it contain?
The proforma invoice typically indicates:
- Name and other key details of the seller and the buyer;
- Item list without abbreviations, quantity, characteristics (models) of goods (services);
- The unit cost of goods (services) and the total transaction amount;
- Delivery terms.
In the payment request invoice, include:
- Date, invoice, and PO number;
- Contractor (seller) and customer: name of the legal entity or full name, location, and other relevant data to get in touch with the entity;
- List of items: full name and characteristics of items listed, quantity, the unit cost of goods or time spent on work (service);
- Subtotals and totals, including any taxes, discounts, etc.;
- Payment (bank) details and terms of payment;
- Delivery terms;
- Invoice payment due date and late fees (if applicable).
In general, you would include any piece of information a person paying you possibly needs to know to pay you without it being complicated.
Things to consider
Before we proceed to explain how to make an invoice step by step, we want to go over important points you should be aware of.
- Usually, the invoice is filled out on the company’s letterhead or a template personalized with the company’s logo, colors, etc.
- It is best if you make it electronically and duplicate it on paper, if necessary. On that note, check with the counterparty how they prefer to receive the invoice — by e-mail or in paper form.
- The document is drawn up in English, but it is also possible to make an invoice in the language of the country where the customer is from.
- It is better not to use abbreviations, write in as much detail as possible (e.g. “1-year subscription to “Business Insider” newspaper”).
- The presence of errors in the invoice always leads to unnecessary excuses, document revisions, and of course a delay in receiving money from the customer.
- Although it is nice to have some branding and your logo/watermark, you should not go overboard with the design. Instead, you should be clear and concise when creating an invoice.
- When sending by postal mail, you need to make sure you consider the time it will take for your invoice to arrive.
- If possible, use special invoicing software and/or mobile applications.
We would like to elaborate on the last item. The goal of any seller or service provider is to get paid as soon as possible and have more cash running in the business. Well, the invoicing software makes it easy to send invoices right when the goods are shipped or services provided. It also allows customers to pay online by clicking on the appropriate link in the invoice. The easier it is to pay, the faster the customer will do it.
Moreover, such electronic invoices allow a business to customize the look of the document, add a logo, and save a template. Having every single invoice created in the same way makes your company look more professional and trustworthy. Also, many invoicing programs allow you to automate recurring invoices, send reminders to the customers, and track all the invoices all in one place.
How to make an invoice
Let’s go through the process step by step.
Create a header
For the header, it is necessary to include at least the title (“Invoice”) at the top. Seller’s name and how a customer can get in touch with you are typically written on the left side. You should also include an invoice number just for your records and to keep track of which one is which as well as easy reference if any issues arise. The date is another small but important line to add.
Include your client’s contact details
On the right, you would add the contact details of the entity you are sending the invoice. This makes it clear who owes you the money, so not only the client is confident the invoice is addressed to them, but also if there is a change you need to take this further and chase it up, you have a record of who you sent it in the first place. If possible, direct the invoice to the person who is in charge of the Finance department to get your payment faster and not have the invoice get lost.
Specify payment terms
This is one of the key sections in the document. You should make sure to specify the method and the deadline by which the customer should send you the money. If you are offering a discount to clients who pay you earlier, it would be a good time to include the discount info. Business owners are encouraged to take advantage of the direct deposit option most invoicing services offer. When your client receives the invoice, all they need to do is click the “Pay” button and choose any convenient method to complete the transaction. If you are receiving an international payment, you should also add your IBAN and BIC numbers, which can be easily found in your banking system.
Add an itemized list
You also need to write all the details on what you did for the customer and how much you are charging. So, you should provide a list of items you have sold to the customer or a breakdown of the work you have done, and next to them, specify the cost per each one. You do not want to generalize any of the line items in this section as it allows the customer to know what exactly you are charging for and not set aside the document to verify all the numbers.
Include totals, discounts, and taxes
Finally, you need to add the total at the bottom, preferably using a slightly larger font, so your client can see right away how much it is that you are owed. If taxes apply to your sale, then list the amount of taxes the customer has to pay. The same goes for any discounts your business is offering, so if you have a 10% sale, you will list the purchase total and then subtract 10% of that to arrive at the bottom line or the amount the customer would need to pay you.
Finish with notes
At the bottom of the invoice, you can say something like “It was great working with you” or write a short and sweet “Thank you”. You might want to remind the client about late fees or add anything else you desire.
Check the data
If the invoice is not generated correctly, then it is fraught with the delay of payment. Therefore, before sending the document, you should carefully review it to identify possible errors and inaccuracies. The main points that should be checked in the document are the following:
- Is there a description for all goods? If it is not clear enough, it should be supplemented with more details.
- Is the price indicated for each item correctly and is the total price indicated?
- Does it have sufficient information to make the payment?
- Is there a signature from the sender?
In general, working with invoices seems difficult and time-consuming only at first glance. You quickly get used to this procedure and so much so that it becomes a normal daily activity. This is especially true if you use invoicing software, where a big portion of the work is automated.