Creating Perfect Invoice: What Every Small Business Owner Should Know
Entrepreneurs and company owners should familiarize themselves with the finer points of creating invoices. If you follow sound invoicing practices, it can help you get paid faster, and this can provide you with more money for operational expenses as well as business expansion.
But that isn't the only benefit that you’ll get from implementing good invoicing habits in your company.
A well-crafted and accurate invoice tells your clients that you're running a professional business. It can also help build awareness. In fact, if you use a comprehensive cloud-based accounting solution for your business, you can effortlessly add your logo to your invoices. This will provide you with a free and effective way to boost your brand stickiness.
In this post, we'll start with a brief description of the crucial role an invoice plays in the accounting process and go on to talk about the details that every invoice should contain. Finally, we'll list some invoicing do’s and don’ts that every small business should follow.
What’s an invoice?
An invoice is a commercial document that a seller provides to a buyer. When you make a sale, the business invoice you create would contain details of the sale transaction. The customer should find it easy to link the invoice with the goods that have been purchased.
Invoices also serve another essential purpose. They provide a paper trail that supports the entries in your accounting records and tax returns. In fact, they can form a part of the documentation that the IRS may ask to see during an audit.
It’s important to know that an invoice is different from a receipt. An invoice provides details of the amount that a customer is required to pay for the goods that have been purchased. On the other hand, a receipt is a document that the seller issues to confirm that payment has been received for the goods or services that have been sold.
Information that you should include in an invoice
A comprehensive and well-structured invoice should answer all the questions that your customer has about the transaction for which you’re seeking payment. You may want to consider using an invoice template provided by one of the leading cloud-based accounting software providers for creating your invoices.
Here’s a list of some of the key information that an invoice should contain:
Date: The date on an invoice is when the transaction is recorded in the seller’s books. It’s also the date from which the number of days of credit for the sale transaction is calculated. So, if the credit period is 30 days and the invoice date is June 1, the payment would be due on June 30.
Your company’s contact information: The invoice should include the seller’s name, address, phone number, email address, and the name of the person who should be contacted if the buyer has a query. Remember to add your company’s logo, too.
Invoice number: This is an essential requirement to keep track of the transaction.
Complete details of the products or services for which payment is being requested: It’s a good idea to provide full particulars of the transaction. A little extra effort here could save you a lot of trouble later. Every line item should have a separate amount. And you should also remember to mention the tax payable and tax rate percentage.
Total due: The total amount payable should be in bold font.
Payment terms: Tell the client when the payment is due. If you’re offering an incentive like 5/10 Net 30 for early payment, you should mention it here.
Name and address of the customer: You should include the full postal address, the name of the person you’re sending the invoice to, and the email address and phone number, as well.
Invoicing do’s and don’ts
Here’s a quick list of invoicing do’s and don’ts that you may find useful:
- Be polite: Say “thank you” at the bottom of your invoice and consider using the word “please” when asking for payment. It doesn’t cost anything to be courteous and it will help create a good impression about your company.
- Add a line mentioning your late fees: Remind customers that they are required to pay extra if they delay the payment. Of course, you may subsequently decide not to levy the late fee, but bringing this point to their attention in the invoice could get you your payment faster.
- Check the invoice carefully before you send it: It could be embarrassing if the client finds an error in your calculations or in the details of the items you’ve listed.
- Remember to follow up for your payments: Institute a system to remind the customer about overdue invoices.
- Don’t send the invoice to the wrong person: Invest some time in ascertaining the name and email address of the person responsible for making your payment.
- Don’t delay raising the invoice: If you do this, the customer may think it’s okay to delay payments. At the very least, it will project a poor image of your company.
- Don’t include any charges that haven’t explicitly been agreed to by the client: If you think any extra payment is due, discuss the issue with the customer before including the amount in the invoice.
- Don’t forget to provide several options for payment: It’s best to allow clients to choose a payment method that they find convenient. For example, consider providing options to pay by credit or debit card, bank transfer, or check.
The bottom line
Invoices play a critical role in the accounting process and provide a permanent record of the transaction between the buyer and seller. Therefore, it’s advisable to periodically review your company’s invoicing practices to ensure that you’re carrying out this routine but vital task as effectively as possible.