No matter what industry you’re in, one of the most important documents you’ll send (and receive) is an invoice. And whether your business is well underway or just getting started, chances are that some people in your organization are still not entirely sure about what is an invoice?
This crucial document outlines the buyer, the seller, the product or services exchanged, and how to pay the bill. Below we identify the various elements of an effective invoice, and the importance of each.
You may consider your company’s logo, or name in an enlarged font, at the top of the invoice template. This will make the document easily-recognizable by clients and customers. (Learn more about professionally looking invoice templates).
Clearly state the document as an “invoice” at the top of the page. Also towards the top of the page, state the date, including month, day, and year.
An invoice number or billing code should also be provided, and it should link to your internal tracking or billing software. If the invoice is for multiple invoice numbers, ensure that you include all of them.
A purchase order number may also be included here, if applicable.
Key Company Information
What is an invoice if the recipient doesn’t know who it’s from? It’s important that you include all distinguishing information about the payee at the top of the document. This information should include:
- Company name
- Payee name, if different than company name
- Company address (including the address where payments may be mailed if different from company address)
- Phone number
- Fax number
- Email address
- Tax Identification Number (TIN), if applicable
The format of such information isn’t important, as long as it is clear and concise.
Payer Information/”Billed To”
The “payer” is the individual or company responsible for paying the invoice. Similar to the key company information, the payer information section should include the following:
- Payer name
- Payer company name
- Payer address (this is generally where the invoice will be mailed if sending a hard copy)
- Phone number
- Fax number
- Email address
Accuracy of this information is key. Misspellings of client/customer data do not give a good impression!
If your business sells goods (products), use this section to detail this information. Provide relevant data such as product ID, product name and description, quantity sold, and per-unit price.
You may also include any taxes applied to the goods in this section. And if you granted any promotions or freebies, this section is helpful because you can itemize that product with a zero dollar amount.
For products that were delivered, whether by your company or a third party, you may also consider including a delivery date and tracking number in this section.
If your business provides services, use this section to detail this information. Provide relevant data such as the date the service was provided (and by whom,) the number of hours of service provided, and the hourly rate (unless it was billed as a lump sum.)
Keep in mind that often, internal auditors review invoices for unclear detail in this section, as it can often be a red flag for fraudulent invoicing. For this reason, it’s imperative that you provide as much information in this section as reasonably possible.
For example, short descriptions such as “consulting services” are not recommended. A better alternative would be “March 23, 2017 – John Smith consulting services (procurement report analytics) – 4 hours, $150 per hour – see rates in contract addendum FY15a.”
…Plus Anything “Extra”
What is an invoice add-on? Apart from the actual goods and/or services provided to the client, you may also have extra fees or add-ons, like taxes, service fees, included tips, etc.
Be sure to itemize these details. For example, don’t simply say, “add-ons.” Your customers likely won’t know what this means and, once again, an auditor may find issue with this vague information.
This might seem obvious, but despite all other details included on your invoice, this is the most important. Everything listed on your invoice should equal the balance due.
The only exception? If you’ve sent multiple invoices, and some have not yet been paid, you may find it useful to include total balance due, which would be the total of all outstanding invoices.
This can be helpful for a customer since they will not need to dig up old invoices and add them up – instead, they can simply pay the total balance due on the most recent invoice.
Payment terms generally include when payment is due, and penalties if this is not met. Terms may be 10 days after invoice date, 30 days, etc. (all the more reason to include a date at the top of your invoice!)
Consider penalties carefully, too. When considering what is an invoice penalty, think about what’s standard for your industry. This might mean a percentage of the total invoice is added to the bill (e.g. 5%) or a flat dollar amount.
Payment Methods Accepted
Use this section to discuss what forms of payment you accept. This includes physical checks, money orders, credit cards (specify which cards), PayPal, etc.
If the invoice is electronic (e.g. web-based or sent via email) you can include links in this section, as well. This is particularly useful for PayPal.
If you accept payment over the phone, you may also want to include the phone number in this section.
Contact Information for Questions or Concerns
Though it may seem obvious since you’ve already included this information under Company Information, it can’t hurt to provide a phone number for customers to call with questions or concerns.
But remember: if you’re going to provide a number, there must be someone to actually answer the call, or return it. Nothing upsets a customer more than finding an error on an invoice, and not being able to speak to a real person about it.
There’s No Need to Ask, “What Is An Invoice?”
Pick up any invoice laying around at home or in your office – this might be your mortgage bill, a medical invoice, or an invoice you’ve received from one of your suppliers. You’ll be able to identify most (if not all) of the sections we’ve shared above.
Remember: above all, your invoice must be clear, concise, and error-free, whether you create it manually, use an online invoicing platform or invoice generator apps. For further assistance in developing your own invoicing management process, contact us today.