Types of Invoices
As we’ve seen, there’s more to invoicing than first meets the eye – and the rabbit hole only goes deeper from here. Invoices are not made equal, and on top of choosing the right creation process and data to include, you need to consider the type of invoice you use for any given transaction.
That’s because all invoices are not created equal and different types suit different situations. So, below, we’ll discuss the division and definition of invoices every business should know.
- Proforma Invoice: Similar to a business quote, a proforma invoice is traditionally sent to customers before any products or services are provided. It contains estimated costs, delivery dates, ToS, and other details.
Proforma invoices require no payment. Instead, once it’s been received, the customer can accept it and give you the green light to start fulfilling their order.
- Sales Invoice: When hearing the word “invoice”, this is what most people imagine. Also known as “regular” or “standard” invoices, you send sales invoices to your customers to request payment for products/services provided. To learn more about this document type, just scroll up to find its full definition, required contents, and more.
- VAT/Tax Invoice: Nearly identical to a regular invoice, what sets the VAT invoice apart is that it includes the Value Added Tax on the consumption of goods/services. This is particularly important if you operate within industries (retail, wholesale, manufacture, hospitality, etc.) in countries (EU, North America, etc.) that require VAT to avoid paying it yourself.
- Consolidated Invoice: Combining multiple documents into one consolidated invoice saves your customers the time and trouble of browsing through numerous invoices and paying them all individually. This type of invoice is particularly useful when simultaneously fulfilling several orders for the same client.
- Commercial Invoice: Most often used in international trade, commercial invoices act as legal proof of a deal between you and your customers. They’re also used to calculate tariffs, taxes and streamline the customs process during shipping.
- Recurring Invoice: Like subscriptions, recurring invoices are used when you deliver products/services to a customer regularly. Usually, they can be issued weekly, monthly, quarterly, or yearly; and are required for a customer to continue enjoying your services.
- Retainer Invoice: Unlike other invoices, retainer invoices are sent to customers with a payment requirement before products/services are delivered. This type of business document is typically used when customers want to reserve your capacity in the near future or to protect yourself against cancellations.
- Interim Invoice: Instead of the full price, interim invoices request partial payments to fund operations during long-term projects. The payment amount is usually determined by the percentage of work completed or milestones achieved. Interim invoices are desirable for customers, as they let them break down costs into more manageable payments.
- Timesheet Invoice: While other invoices usually break down partial prices by items or services provided, timesheet invoices request payments based on the hours worked by a service provider on a project. For this type of business document to be efficient, you’ll need to establish hourly prices for each activity and employee and offer a comprehensive overview, along with the total amount.
- Final Invoice: As the name suggests, this document is the final invoice you deliver to customers after completing their project/order. It includes all the usual information, but the amounts of previously issued invoices (retainer/interim) are deducted from the payment total.
- Credit Memo: When you owe your customers money, credit memos are used to acknowledge the debt and offer “credit” the customers can use to finance future purchases from your company. These documents are often used in B2B, where two businesses offer each other services regularly.
- Debit Memo: Similar to standard invoices, debit memos differ in that they’re usually issued after an order has been fulfilled, but you need to increase the price. This often happens as a consequence of unforeseen changes in the economy.
- Mixed Invoice: The result of combining both a credit and debit memo, mixed invoices are used when your customer’s credit turns out insufficient to cover all costs associated with their order. The total amount is identified by deducting credit from debit.
How to Create an Invoice in 6 Simple Steps
Regardless of how you decide to create your invoice (we’ll discuss the best approaches shortly), the process remains largely the same. Every invoice needs to include 6 steps/pieces of information to be legal, relevant, and professional. And so, without further ado, here they are.
To create a professional invoice, you have to:
- Identify the Document: To avoid confusion and make tracking easier, every document you create should have a name and an ID.
Name: This can be specific to the client or deal, but usually, it’s enough to identify the type of document you’re creating (i.e., Invoice).
ID/Number: This unique number determines when (or in what order) a document was issued, like “#0001”. We’ll discuss how to assign an invoice number in the next section.
- Add Company Information: For an invoice to be legally binding, it must include both your and the client’s company information. This includes the name, physical address, business ID, and contact person; and helps ensure it reaches the correct recipient.
- Add Products & Descriptions: To prove you’ve fulfilled your end of the deal, your invoice has to detail all the products and services supplied, along with their amounts and descriptions.
- Specify Relevant Dates: Invoices are time-sensitive documents, so they should include several dates to help avoid confusion, late payments, and subsequent potential lawsuits. These include:
Issue Date: Details when the invoice was created and sent to the customer.
Delivery Date: Specifies when the products/services identified in the invoice were delivered.
Payment Date: Set a clear deadline until the customer has to pay you. If they fail to do so, you can charge them late payment fees or potentially take them to court.
- Include Pricing: You have to specify how much the customer owes you so that you can get paid. There are two types of prices you should include on your invoice.
Item Price: Specific to each product or service supplied. You can also add a “per unit” price if the client ordered several units of the same thing.
Total Price: Add all the partial item prices described in the invoice into one.
- Detail the Payment Terms: The terms of every business deal must be clearly defined to be legal. This includes when and how a customer should pay your invoice. Usually, you’ll cover these with your client before accepting an order, but you should include payment terms on your invoices to ensure the payment process goes through smoothly.
How to Assign Invoice Numbers
Among all their functions, invoices also play an important role in resolving legal disputes and paying taxes. However, to use your invoices efficiently in this way, you need to be able to track them accurately. This is where invoice numbers or invoice IDs come into play.
As the name would suggest, invoice numbers are numerical sequences that identify when an invoice was issued. Most businesses and invoicing platforms use the default pattern of “#0001”.
However, for added accuracy, you can use a dated system to track the order of invoices issued in a year, quarter, or month (#2023001) or a client-based approach, where you assign a unique ID to each of your clients and track how many invoices you issue to them specifically (#01001).
Doing this helps avoid unnecessary confusion and makes finding a specific invoice much easier. Better yet, invoicing systems like Billdu let you create invoice number pre-sets and assign corresponding IDs to your newly created documents without you having to lift a finger.
The 5 Ways to Create a Professional Invoice
So we’ve discussed how to create an invoice in the general sense, but now it’s time we look at the tools you can use to do so – as well as all the benefits and downsides they come with. In no particular order, the 5 ways to create a professional invoice include:
Standard Document Creators (Excel, Google Sheets, Word, etc.)
If you’re just looking to get into creating invoices, it’s completely natural to start by looking at the software you already have access to, like Excel, Google Sheets, or Word.
And in all honesty, these solutions have a lot going for them. They’re usually very affordable (or even free), can be accessed on almost any device, and offer many customization options. Spreadsheet programs like Excel and Google Sheets, in particular, can be very helpful, as they allow you to set up functions to add up pricing totals automatically.
However, they’re far from perfect. Creating a professionally branded template in any of these solutions is almost impossible since their graphic editors are limited. On top of that, if you’re unfamiliar with the system, even creating a single invoice can take a lot of time.
You can limit these downsides and save time by using a premade template, and luckily for you, we have several. All you need to do is choose a template for your preferred system, including Word, Excel, Google Sheets, and PDF, pick your favorite design, and start creating!
Customizable Online Templates
Are you always on the move? Would you prefer not to go blind from straining your eyes to see the minuscule letters and numbers on your mobile doc creator app? In that case, customizable online templates are the invoicing solution for you.
You can use online templates to create invoices and other business documents anytime and anywhere directly on your favorite smart device (laptop, tablet, smartphone, etc.). Our templates are made with the mobile environment in mind, meaning you can comfortably use them on a screen of any size.
Online templates come with a variety of design options, letting you choose the color scheme and layout that fits you the best. On top of that, they’re fully customizable, so you can reinforce your branding with logos, legally protect yourself by adding payment terms, and more.
However, that’s not to say you have to do everything by yourself, as you would in Excel, Word, or Google Sheets. Billdu’s online invoice templates offer a fair degree of automation, including automatically adding up price subtotals and totals and filling in invoice numbers – all to save you some time and trouble.
And speaking of saving time, if you decide to use customizable online templates to create your invoices, remember to add your banking details at the bottom of your template, so you can get paid faster.
Specialized Online Invoice Maker
If you’re completely new to invoicing or operate a small business and need to create a lot of invoices quickly, you should definitely try a Free Online Invoice Generator.
It’s a quick on-the-go solution with premade sections for everything important, including logos, contact information, dates, prices – the works! That means all you have to do is fill in your information, click “generate”, download the PDF, and send.
If you’re a little pickier about your invoices or have special requirements, you don’t have to worry either. At the top of our invoice generator, you’ll find a menu full of useful options to tailor your document to your needs. That includes language, currency, tax labels, as well as invoice design, and color.
Finally, the Billdu Invoice Generator is completely safe to use, as we don’t save any of your data and even offer the option to password-protect your finalized document. Though if you’d like to save yourself time and have all your data pre-filled for future use, we have a solution for that too.
Speaking of which, let’s take a look at creating invoices with an…
If you’re running a one-person operation or an SMB with few employees and clients, investing in automated accounting software can seem a little overkill. Still, it’s hard to argue with the fact that it offers a lot of benefits.
For example, once you input your client’s information in your accounting software, you can automatically fill it into any document (invoice or otherwise) you create, making invoice generation a complete breeze. On top of that, the system also takes care of tracking dates and invoice numbers, calculations, and more on your behalf.
In one centralized environment, you can create, duplicate, delete, and send documents with just a few clicks. But systems like Billdu come with even more advanced features to make your life easier, including automatic payment reminders, card payments, expense records, and accountant collaboration.
If you value your bookkeeping highly enough, run a growing SMB, want to future-proof your financial operations, or just want to see what accounting software can do for you for 30 days completely free, we highly encourage you to try Billdu!
Finally, we reach the option right for every artist out there. You can create your invoices by hand if you want them to be 100% on-brand. Of course, we don’t mean drawing them on paper – that’d be time-consuming, difficult to replicate, and not very digital-friendly.
When discussing manual invoice creation, we mean designing your invoice sample or template in a digital editor like Canva. Naturally, this also comes with its fair share of limitations.
First, it takes a lot of time to design the template and create every new document manually. On top of that, you’ll also need to do all your table management and calculations.
This makes fixing mistakes more of a headache and doesn’t scale well as your operations grow. However, as we said, it does give you total control over your documents’ look.
The Benefits of Digital Invoicing
Nowadays, everyone can enjoy the convenience and efficiency of digital invoicing, but it wasn’t always like this. For years, businesses had to rely on paper-based solutions – designing, printing, shipping, and storing invoices for all their deals.
Unsurprisingly, this turned out to be quite costly for both the environment and the businesses themselves. So, why don’t we take a moment to appreciate the value digital invoicing has brought us and perhaps convince those who still hold onto the old way of doing things?
The benefits of digital invoicing include:
- Lower Costs: At first glance, it may not seem like it, but paper-based invoicing carries a significant price tag. The piles of papers, printers, ink cartridges, and postage costs all eat into your bottom line.
Meanwhile, digital invoices are essentially free outside of your devices, internet connection, electricity bill, and possibly invoicing software subscription. And as an SMB, you can never have enough extra resources.
So, why not spend your hard-earned money on something your business needs?
- Time-Saving: As explained above, a lot goes into keeping paper-based invoicing on track. Designing, printing, and handling all take a lot of time, which your employees could spend more efficiently doing something else.
On the other hand, generating and sending a digital invoice only takes a few clicks. Give yourself the room to do more better, maximize your efficiency, and spend the extra time on tasks that actually require it.
- Streamlined Operations: Making a factual mistake or losing an invoice used to be costly mistakes. But with a central invoicing system, you can make edits and recover business documents in moments, saving face in front of customers and money on fines.
- Easier Bookkeeping: Invoices give vital insights into your company’s financial health, allowing you to benchmark performance, file taxes accurately, and more. Unfortunately, back in the day, this benefit was held back significantly by the time and effort it took to browse through all your folders and papers.
Nowadays, you can enjoy it in full thanks to digital invoicing. Cloud solutions like Billdu let you save all your invoices and other business documents online and access them anywhere, anytime, from any of your smart devices.
Alternatively, you can invite your accountant to manage your business documents and finances remotely and never worry about a thing again.
- Ecologically-Friendly: As we mentioned, the large scale of paper production and consumption involved in invoicing took a significant toll on the world’s environment in the past. And that’s not good since the world is the thing we live on.
Digital invoicing eliminates this negative effect almost in its entirety (apart from the associated carbon emissions involved in running offices with electrical devices), letting you do business better and faster while doing your part in prolonging our existence on our planet.
How to Send an Invoice to Your Clients?
So you’ve created your invoice – now what? Before you can get paid, you need to send the invoice to your clients, but that’s not always as straightforward as it may seem. So, let’s take a look at how to make sure you get your money on time and avoid having to chase down late payers, shall we?
- Create Your Invoices Ahead of Time:
You might ask yourself, “What’s the hurry?”. But you should be prompt if you want your clients to be too. That’s why it’s important to prepare your invoices and send them to your clients as soon as you deliver all the products/services you promised.
- Choose an Appropriate Document Format:
PDF is the most common format used for issuing invoices – and for good reason. Even if you create your documents in Word, Excel, or some other program entirely, you should convert them to PDF.
That’s because there is no guarantee that your clients have access to whatever software you use, meaning they might not be able to view your invoice, which causes needless confusion and delays.
- Use the Correct Delivery Method:
Whenever you send an invoice, you want to make sure it reaches your clients in a reliable and timely manner, somewhere where they’re sure to notice it. Email is usually the best option, but you can choose a different platform if it suits both parties. Just send it to the right person.
- Protect Your Documents with a Password:
If you’re using a communication platform you don’t completely trust or want to seem even more professional, password-protecting your documents’s always a good idea.
On top of that, it’s even better to deliver the password to your client by some different method (ex., call, SMS, etc.) to ensure no unwanted party can access it. However, don’t forget to give your customers the password if you want to get paid anytime soon.
- Check-in to Make Sure Everything Went to Plan:
If you did everything correctly, you should receive your money within the next 14 days (unless agreed otherwise). However, that’s no guarantee. That’s why we encourage you to check in with your client after issuing your invoice to ensure they’ve received it.
Alternatively, you can use an accounting system like Billdu to set up notifications, to show you when your invoice is opened, and even payment reminders to ensure your clients don’t forget to compensate you for your services.
Best Practices for Creating an Invoice
We’ve covered a lot so far, but there are still a few more techniques you can use to make your invoicing process so much better, which we couldn’t fit in anywhere else. So, if you’re in the market for some free invoicing best practices that pay off, keep reading!
With our guidelines, you can effortlessly and freely create an invoice in both Word and Excel.
Discuss the Payment Terms Beforehand
As with any healthy relationship, it’s important to start off with your clients on the right foot. If you’re in a B2C industry, your terms of service don’t have to be communicated individually – a section on your website and at checkout are enough.
But when it comes to B2B, we wholly recommend you discuss payment terms during the first negotiation stages. Explicitly state the expected issue and delivery times of your invoices, as well as acceptable deadlines and forms of payment.
Just these simple steps can help you elevate to a trustworthy provider in your customers’ eyes. Keep to them, and you’ll develop a long, prosperous, mutually beneficial customer relationship.
Make the Invoicing/Payment Process as Simple as Possible
As we said earlier, any extra step added to your billing prolongs the process and exponentially increases the chances of you not getting your money. To ensure no complications arise, make your invoicing as simple as possible.
Avoid any unnecessary confirmations or additional paperwork. Ideally, the process should involve nothing more than an order, product/service delivery, invoice issue and delivery, and payment.
Stick to time-tested basics, and not only will you get your money on time, but the customer and your finance team will also thank you.
Keep Your Invoices Clear, But Comprehensive
Clarity is just as important in your actual invoices as in the entire billing process, so creating a legible invoice template containing all the necessary items and sections is a must.
Although all parts of your invoice are equally important from a legal standpoint, the ones your customers care most about and you should pay extra attention to include the list of items (products/services) provided, individual price, and total price.
Any confusion regarding these sections is sure to cause frustration, so the best practice is to visually separate them from the rest via stylized borders and graphics to draw the reader’s eye naturally.
Offer Multiple Payment Options
If you want to promote sales and avoid annoyed customers and late payments, removing barriers from the payment process is vital – particularly regarding payment options. Your clients want to be accommodated at every step of the way, and forcing them to use a payment gate they’re uncomfortable with will surely not win you any favors.
So, if you want to make sure your CSAT stays high and you keep getting paid on time, you should offer a good selection of payment options, including card, Apple Pay, Google Pay, bank transfer, and more.
Final Thoughts on How to Create an Invoice
And there you have it, folks – everything you need to know about invoicing. As you can see, there’s quite a lot you need to consider when creating and issuing your invoices, but now you have a reliable resource to fall back on if you’re ever in doubt.
But if you still struggle with the practical implementation, why not make it easier on yourself and give Billdu a try? Our invoicing software is easy to use, comes with all the features (and more) discussed throughout this article, and is completely free to use for the first 30 days to boot!
Take your invoicing to the next level and on the go – all you need to do is sign up!
Experience efficient invoicing: Try the Billdu app today!
Dive into the world of efficient invoicing by trying the Billdu app today! See how it can revolutionize your billing process, promoting efficiency and facilitating prompt payments.