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Creating and sending invoices is an essential part of running your own business. It might seem like boring admin, but it’s vital to include some critical components. Invoicing errors can lead to late payments – something no solopreneur or small business owner wants.
If you’re newly self-employed or have been running a business for a while, it’s always good to check you’re including the right information, and presenting your invoice in a way that makes it easy for the recipient to process. This could help you to get paid promptly and will also ensure your business records are accurate.
What is an invoice?
An invoice is a document sent from a business to a client to request payment. It contains all the details the client needs to make the payment, such as an outline of the work completed, the payment terms, the total amount due and more (we’ll go into these below).
If both your business and your client are VAT-registered, you’re required by law to provide an invoice for tax purposes. However, it’s good practice for anyone providing goods or services, including freelancers, sole traders and side-hustlers, to provide invoices.
Invoices are a useful way of keeping track of the money flowing into your business, making life easier when the time comes to file your self-assessment tax return. As well as covering your back from a financial and regulatory perspective, you can also use invoices to reinforce your brand. Adding your company logo to your invoice shows that you’re professional and could help make your business more memorable.
Sometimes invoices are confused with receipts. While they both relate to payments, there is a crucial difference: an invoice requests payment, whereas a receipt proves that the payment has been made.
Depending on how you run your business, the two main types of invoice you’re likely to send to clients are a standard invoice (you can use as either a sole trader or limited company) or a VAT invoice (when both company and client are registered for VAT).
VAT invoices will require additional information to comply with VAT rules, such as your client’s VAT registration number and the VAT being charged. Generally, these should be submitted within 30 days of the date you supplied the goods or service.
» MORE: How to Choose a Company Structure and Register a Business
What to include on your invoice
Naturally, your invoice needs to specify payment details and the amount owed, but there is other information you need to include.
Here’s a quick list that you can check off as you go:
- invoice date
- invoice number
- business name (and your own name too if you’re a sole trader)
- registered business address (or correspondence address if you don’t have one)
- name and address of the client
- a clear description of the products or service you provided
- the date the products or service were supplied
- breakdown of costs
- total amount due
- payment terms
- your payment details
- purchase order (PO) number, if applicable
- VAT details (if both businesses are VAT registered)
Including these key pieces of information allows both businesses to keep a detailed, trackable record of payments.
» MORE: What to do about late payments
How to create your invoice
For those new to invoicing, a template could help you make sure you include all the necessary information. Miss anything out, and you run the risk that you won’t get paid promptly.
You can find invoice templates online for free and in computer programmes such as Microsoft Word and Excel. These can be edited and customised to suit you and your brand. But don’t get distracted by perfecting the colour scheme – first, focus on the critical components below.
1. Start with your business details
Include your business name (or your full name, for sole traders trading as themselves), your registered business address, phone number, and email address.
Tip: Don’t put your contact details in tiny lettering or fancy font; make them easy to read. If the person paying the invoice has any queries, you want them to be able to reach out quickly. An email address that’s hard to read could potentially lead to a late payment.
2. Add your client’s details
Include the full name or company name of the client you are invoicing, along with their business or personal address and contact details (such as phone number or email). Avoid using nicknames, even if the person you’ve completed the work for is a friend or relative.
Adding the address of the company you’re invoicing allows them to use the invoice as a business record if they need to claim back expenses or VAT.
Tip: Double-check their company details to ensure the invoice reaches the right person or department, especially if you are dealing with a larger company.
3. Create a unique invoice number
Every invoice must have a unique identification number – for your records and for whoever is paying it. Missing this off could delay payment and make you appear unprofessional, so don’t skip this step, even if you’re invoicing a relatively small amount.
There’s nothing wrong with starting with 001, but you may find it helpful to add some letters to help you match up payments to specific projects, and some business owners include the date in their invoices.
For new business owners and newly self-employed professionals worried about appearing inexperienced, this makes it less obvious to your client that you’re new to invoicing. For example, if you completed a web design project in March, your invoice number could be WD-2503001. Whichever software or template you use, saving the document with the word ‘invoice’ in the file name could help you get paid quicker.
Tip: It’s worth spending some time thinking about a numbering system that will help you make sense of lots of invoices in the future. If you plan to take on multiple clients, consider incorporating letters into your invoicing system to make it easier to track payments from different customers.
4. Include the supply date and invoice date
The Supply Date is when the goods or services were provided. The Invoice Date is when you issued the invoice, so put today’s date if you’ll be sending it today. Both dates are legally required and are essential for record-keeping and payment scheduling.
Tip: For sole traders working on digital projects, the supply date could be the date you completed the work, or the date you handed it over to the client.
5. Provide a clear description of goods or services
List each product or service you are charging for with a clear description. If you are invoicing for more than one item, use a table and put each element in a separate row, so that the breakdown of costs is clear. Include quantities, rates, and any other relevant details. If you’re a freelance designer, for example, your quantity may be the time you’ve spent on a project. If you sell candles, it may be in units.
» MORE: How to Start a Candle Business
Tip: Avoid using vague or unnecessary wording that could make it harder to understand exactly what you are charging for. Keep descriptions short and specific, making it easier for the person signing off payments to approve your invoice quickly.
6. Give the amounts charged and the total
The cost for each item or service should appear in a column next to the description, with the total amount due at the bottom.
If you are VAT registered, you must also show the VAT amount separately, including your VAT registration number, the net cost, VAT rate, and the total including VAT.
Tip: Check the maths. Business owners using accounting software to create their invoice should have no issue with totals. However, if you’re manually creating your invoice using a template, it’s always worth running the numbers through the calculator on your phone or using Excel to add them up.
7. Add terms and methods of payment
It’s vital to state clearly when you require payment, for example, “Payment due within 30 days” or “Payment due no later than 31 May”. Include the payment methods you can accept (such as bank transfer or PayPal).
If you’re requesting payment via BACS, you’ll need to include your bank details (sort code and account number) for the transfer.
Finally, if you’ve received a purchase order (PO) from your client, you should include the PO number on the invoice.
Unfortunately, late payments are a problem for thousands of small businesses, so don’t let an omission on your part give bigger businesses an excuse.
Tip: Some businesses offer a discount to customers who pay within a shorter time frame, as a way of encouraging prompt payment. For example. “10% off if payment is made within 7 days”. Use this strategy cautiously, and don’t offer discounts unless there’s plenty of room in your profit margin.
How to send your invoice
It’s important to note that it’s now a requirement for VAT-registered businesses to keep records digitally and file their VAT returns using HMRC-compatible accounting software. This is part of the government’s Making Tax Digital (MTD) scheme.
If you’re unsure how and when the roll-out of Making Tax Digital (MTD) applies to you, we’ve set out the steps to make the transition as stress-free as possible. Adopting accounting software ahead of MTD deadlines can uncover other unexpected advantages. Find out more in our four-step guide. Should you use invoicing software?
Many small business owners and solopreneurs take advantage of digital accounting software to keep on top of their books. Some accounting software packages come with digital invoicing features which could save you time when it comes to generating and sending invoices.
Add the finishing touches
Once you’re happy that your invoice ticks all the boxes from a financial and regulatory perspective, you can then look at using it to reinforce your brand. Adding your company logo to your invoice adds professionalism and could help make your business more memorable.
If you don’t yet have a company logo, try creating one using free design software such as Canva.
Image Source: Getty Images
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