What is an invoice and how do you write one?

Every business owner deserves to get paid promptly and enjoy the fruits of their labour. But unless you know how to write and send an invoice, you may not be able to keep your cash flow as healthy as you like. But fear not, because this handy guide will explain why invoicing is important and what an invoice should include.

What is an invoice?

An invoiceis a document you send as a means of requesting payment for goods or services supplied. It also acts as a record of a sale, which could help you keep accurate bookkeeping. The invoice is often sent to the customer after a purchase has been made, which makes it distinct from a purchase order (PO), which is a request from a customer to buy goods or services.

What is an invoice used for?

The purpose of writing an invoicecan be broader than many people think. Here are some of the ways that invoices are used:

• Requesting payments. When you’ve carried out work, sending an invoicegives your client notice that payment is due.
• Payment reminders. Re-sending an invoice may be a way of nudging your client for an overdue payment.
• Keeping track of sales. Having your invoiceson file may help you to keep tabs on the money due to come into your business. This may help you track your cash flow and plan future growth.

What should an invoice include?

When writing an invoice, here are some elements you may wish to include:

• The date, which can help you track when the invoice was sent.
• An invoice number – a unique number to tally how many times you’ve invoiced a client and to help keep track of invoices issued.
• Your company name and contact details.
• If you’re a limited company you’ll need to include a company registration number.
• A description of the products or services provided (and the delivery dates).
• Payment terms, such as a 30-day deadline.
• The total amount due and VAT if applicable.

When do you issue an invoice?

The exact timing of when an invoice is issued depends on the nature of your business. Here are some of your options which may influence when you raise an invoice.

1. ‘On the spot’ invoices. If you provide goods or a service that you could reasonably expect immediate payment for, like hairdressing or selling clothes, you may wish to invoice upon goods or services being delivered and even issue an e-receipt.
2. Invoice upon completion. For some businesses, it’s fairly common to complete the work and invite feedback from the client before you raise the invoice. This may be preferable if you work on projects where the final total may be hard to estimate in advance.
3. Upfront payments. Some clients may prefer you to invoice them before the work has been carried out, perhaps because the budget needs to be spent by a certain date. Also, you may wish to take pre-payments or a deposit if you’re carrying out a big project where a cancellation would prove costly.
4. Payment plans. For some projects, you may wish to agree that each invoicewill be sent when certain milestones have been reached. This can help you maintain a strong cash flow even during a long-term project with recurring expenses.
5. Retainer invoices You could issue invoices for a pre-agreed fee each month if you’re happy for the client to have the right to use your services for a guaranteed amount of time.

What can I do if an invoice payment is late?

Unless you’ve agreed otherwise, the law states that a payment is late if it hasn’t been paid 30 days after the customer receives the invoice, or 30 days after the service or goods are provided (if this is later than the invoice date). If the payment is late, you have the right to charge interest and claim debt recovery costs – find out more on GOV.UK. This is why it’s important to date your invoices, as this could help you prove that your payment terms have been breached should you wish to make a claim. Take a look at our guide to tackling unpaid invoices for more information.

Disclaimer

This has been prepared by Tyl by NatWest for informational purposes only and should not be treated as advice or a recommendation. There may be other considerations relevant to you and your business so you should undertake your own independent research.

Tyl by NatWest makes no representation, warranty, undertaking or assurance (express or implied) with respect to the adequacy, accuracy, completeness, or reasonableness of the information provided.

Tyl by NatWest accepts no liability for any direct, indirect, or consequential losses (in contract, tort or otherwise) arising from the use of the information contained herein. However, this shall not restrict, exclude, or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.