Milly Fox-Jones
Sending out an invoice may not be at the top of your to-do list once you’ve successfully completed a job for a customer, but invoices are an essential tool for your business. Whether you’re writing your first one or you’ve been at it for a while, it’s always good to check you’re including all the right information.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, such as freelancers or sole traders, to provide invoices. Not only are they a valuable record-keeping tool, but they provide an opportunity to project a professional view of your brand.
Sometimes invoices are confused with receipts. While they both relate to payments, they are crucially different: 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.
What your invoice should include
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
1. Choose or build your template
The first step is choosing the design and layout of your invoice. While there are general guidelines for where relevant information should sit, there are no strict rules about where these details need to go, so there is space to make it your own.
There are plenty of templates to choose from online that you can download for free. These include examples from sites, such as Canva, Microsoft, Sage, and Square, which allow you to customise the template with your own branding.
While not all templates feature this, it’s good to start by naming the document as an invoice – it could help you get paid more quickly.
2. Create your invoice number
Next, you’ll need to create an invoice number. This is a unique identification number that you must assign in sequence to your invoices.
You can decide what form your invoice numbers should take. They can be any combination of numbers and can include letters too..
A popular method of formatting invoice numbers is to start with the month or the year in which the invoice was issued, followed by several zeros and finally the actual number of the invoice. The zeros allow you to use the same format for a high number of future invoices. For example, your first invoice of this year could have an invoice number of 230001, and you can use this format all the way up to invoice number 239999.
It’s up to you how you format your invoice number, as long as you consistently follow that format and add them sequentially to all your invoices.
3. Add yours and your client’s details
At the top of your invoice, limited companies should then add the registered name and address of their business. If you’re a freelancer or sole trader, you’ll need to include your name as well as any business name you use. If you don’t have a business address, you should include an address where legal correspondence can be sent.
Below your address, you should put your client’s name and address. This is standard practice and allows them to use the invoice as a business record if they need to claim back expenses or VAT.
4. Detail the work
The main part of an invoice should outline the service or products that you’ve provided. In this section, you should detail each product or service on a separate line and include the following details:
- A description: Keep this concise but detail what the product or service is.
- The quantity: This will depend on what you’re providing. 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.
- A price breakdown: Be sure to include the price of each item and the total amount due.
5. Set out the dates
For clarity, you should include the following dates on your invoice.
- The date the invoice was created: This serves as a time-stamp showing that the payment request has been made.
- The supply date: This is useful for record keeping as it shows how much time has elapsed between the provision of the product or service and request for payment.
- The payment due date: This should be within 30 days of your client receiving the goods or the invoice unless you’ve agreed to a different date.
Ensure that each date, and what it relates to, is clear to see.
6. Add the payment information
Finally, add the information about the payment. This will include the payment terms, such as when the payment must be made by and any interest you plan to charge for late payments.
As well as the terms, you’ll need to include your payment details. Usually this is via BACS, so 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.
Once you’ve included all the relevant information, a standard invoice will look similar to this:
» MORE: What is a BACS payment?
How to send your invoice
As there is no universal approach to sending a standard invoice, it’s best to think about who your client is and how you’ve communicated with them so far.
The most common ways of sending an invoice are via email or by using invoicing software. If your client rarely uses email or goes online, then you could send your invoice in the post, though it will take longer and is less secure.
If you’ve conducted most of the business via email, then it’s absolutely fine to email your invoice too.
As for software, some online invoicing tools have ‘pay now’ buttons that allow your client to pay directly via a secure link, which can be a quicker and safer way of getting paid.
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 software. This is part of the government’s plan to make tax digital, with digital income tax returns being rolled out from April 2024, followed by corporation tax around two years later.
Should you use invoicing software?
Invoicing software offers companies the potential to make their invoicing process more efficient. For small businesses, software can save time by automating some of the repetitive manual processes of invoicing. Online invoicing will also centralise your data, which can help you to get an overview of your business’s cash flow. Some software packages – like QuickBooks, Sage and Xero – can offer a range of integrated services – connecting to your business bank account, for example.
However, there are some disadvantages including the additional cost of using the software. While some software providers offer free trials, you will need to upgrade your package once the free period has ended. There is also the possibility of offline clients missing your invoices and the risk that automated emails from your software provider informing clients that an invoice needs paying will go to their spam folders.
Invoicing tips if you’re starting out
Go that extra mile and create a professional invoice. If you’re producing one yourself below are a few tips.
- Double-check your sums – any discrepancies can delay payment.
- Suggest you’ve had previous business by using a number other than ‘one’ for your first invoice.
- Add your phone number and email, so your client can easily get in touch if they have any queries.
- Show your appreciation with a friendly thank you at the end of the invoice.
Image Source: Getty Images
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