How To Create A Business Invoice
A professional, well-formatted invoice can build the reputation of your small business, help you communicate better with clients, and allow you to get paid faster.
Owning a small business or working as a freelancer means wearing many different hats to help your business grow and flourish. Within a single workday, you may be required to troubleshoot IT issues, manage inventory, and handle project management tasks. In most cases, these tasks are easy to learn on the job. Unfortunately, accounting-related tasks can be one of the more challenging skills to master. Among these tasks? Creating a business invoice.
The prospect of drafting your first business invoice can be daunting. After all, it’s the document that helps ensure that your business is paid the money it’s owed. Moreover, invoicing mistakes can cause payment delays and lots of headaches. Fortunately, mastering invoicing isn’t a herculean task. Sending out a complete professional invoice simply requires attention to detail and a solid template.
This guide will teach you everything you need to know about invoices, including how to create a business invoice and everything you should include on one. Let’s dive in.
Table of Contents
What Is An Invoice?
An invoice or contract of sale is a financial document exchanged between a buyer and seller that provides an itemized record of commercial transactions between the two. Invoices provide a written record of what is owed and how that amount has been calculated.
Most commonly, invoices record the number of hours worked or the quantity of product sold. That said, your business may need a combination of both or another way to quantify transactions. Luckily, many invoicing software options provide customizable templates that you can use to create an invoice that works for your business needs.
When To Create An Invoice
In the simplest terms, an invoice is necessary when a customer has an outstanding debt to your business. However, this will depend on the terms of your business relationship with the customer. If you are a freelancer with long-term clients, you may have an arrangement that only requires a single monthly invoice. In other cases, you may invoice by the order or each time a product is sold.
Overall, it depends on your business’s operations. For some businesses, a client racking up a $1,000 bill may not necessitate an immediate invoice, but for others, that’s money that needs to be paid back as quickly as possible. To ensure that you get paid for your work or products, it’s important to set a strict invoicing procedure and diligently track all orders.
Invoices VS Estimates
An invoice is sent out after a financial transaction has been completed. An estimate differs from an invoice in two critical ways:
- An estimate does not represent a financial exchange in which a customer is responsible for paying you. It’s not a bill.
- An estimate is typically drawn up before services have been rendered or products sold.
Businesses may offer estimates to allow customers to gauge the cost of a proposed service or produce order. In many ways, it’s similar to the number you see in your shopping cart when shopping online. This amount usually doesn’t reflect taxes or the cost of shipping to your location. That said, a thorough estimate attempts to account for all expected and hidden costs, so the final number is relatively close to the final number on the invoice.
Luckily, the process of creating an estimate is relatively similar to creating an invoice.
Invoices VS Sales Receipts
Where an invoice indicates money owed, a sales receipt indicates money paid. Once you have sent out your business invoice and a customer pays, it’s standard practice to issue a sales receipt confirming that you have received their payment. Sales receipts are primarily used for tax and bookkeeping purposes, as they provide a traceable record of a transaction.
What Does An Invoice Need To Include?
If you’re ready to draft your first invoice or want to double-check to ensure that you’ve been sending out completed invoices, you need to know what information belongs on an invoice. Luckily, there are only a few details you need to remember to include.
Here’s what a basic blank invoice would look like.
Now, it just needs to be filled out with the following information:
1. Customer Information
Customer information includes relevant identifying information about the customer or business being billed. You should always include the following basic customer information on your invoice:
- Customer’s Company Name (this can also just be their name!)
- Customer Business Billing Address
- Shipping Address (if applicable, and different from the billing address.)
Although you’ll be including your customer’s address, it’s common for invoices to be sent digitally through invoicing software. If you want to check out an example of sending a digital invoice, read our guide on sending PayPal invoices.
2. Company Logo
Your company’s logo adds a professional touch to your invoice. Additionally, your logo represents your business and enables your customers to easily identify where the invoice originated from.
Depending on the invoicing software you use, adding your company logo could be as simple as uploading the image from your saved files or a drag and drop option. For example, Paypal’s invoice template allows you to upload your logo onto a template and display it in the top left corner of your invoice. If you are creating an invoice from scratch, you may be able to use a PDF editor to include your logo.
3. Company Contact Information
Company contact information includes your mailing address, phone number, and email address. In the event of an invoice dispute or customer queries regarding your invoice, customers can quickly pull up your contact information and get in touch to straighten things out.
4. Purchased Items
Purchased items are any items or services that the customer is being charged for in your invoice. Whether a client has purchased your services by the hour or ordered a number of your products, it’s essential to include these details in your invoice.
5. Date Purchased
The date purchased reflects the date the order came in or that your services were rendered; it is not necessarily the date the invoice has been drafted. In an order with multiple items purchased on different dates, you’ll have to include separate dates for each item. If you are drafting an invoice for hours worked, you may be asked to itemize your invoice by including each of the different days you worked and your hours for each one.
6. Item Descriptions
Item descriptions will vary greatly depending on what product or service is being sold. For products, item descriptions can include details like color, size, SKU number, and quantity of the same item purchased. Descriptions for services may differ. If you are a freelance writer, for example, you might include the title of your work, its word count, and how many hours it took to complete.
7. Pre-Tax Total
Taxes are calculated based on the total cost of what was sold. This number represents the total cost of listed items and delivery fees before any taxes are levied.
8. Sales Tax
Sales tax is levied by the local and/or state government on the sale of goods or services. Unless your business is located within one of the five states without sales tax (lucky you!), you’ll need to account for taxes on your invoices. Some invoicing software tools can calculate sales tax for you, but it’s a good idea to double-check the numbers to ensure that everything adds up. If you want to learn more about sales tax, check out our post: Small Business Sales Tax Guide.
9. Invoice Total
The invoice total represents the total cost of services rendered or products sold, taxes, and in some cases, the cost of shipping. This is the final amount that the customer is responsible for paying. As the invoice will include many numbers, it’s important to clearly indicate which amount is the invoice total to avoid any customer confusion.
10. Invoice Payment Terms
Payment terms information includes payment due date, accepted payment methods, and whether partial payment or payment plans are accepted. Invoicing platforms may allow you to edit terms from a template, or you may need to draft a set of payment terms on your own. Setting clear invoice payment terms is just one strategy to get your invoices paid faster.
How To Create An Invoice
Creating an invoice starts with the right software. Invoicing software provides businesses with easy-to-use tools that streamline and simplify the invoice creation process. It takes the hard work out of drafting an invoice by allowing you to work from a template that acts as a straightforward guide. You’ll find that invoicing software boasts features that may include inventory management, sales tax calculation, estimated shipping fees, and more. Each of these features reduces the time spent creating invoices and ensures that your invoices are consistent. If you’re interested in learning more about what the invoice creation process looks like within an invoicing software tool, check out our article How To Create An Invoice In Quickbooks Pro.
Invoicing software enables your business to produce professional-looking invoices that easily incorporate your brand logo and other identifying factors. If you are using accounting software, invoicing tools may already be a part of the platform. In some cases, you may have to pay to upgrade to use the invoicing function in an accounting software app, but it may be worth the investment if you can keep everything finance-related in one place.
There are other free software options that aren’t specifically designed for invoicing, but can easily be used to draft professional invoices. These software options include Microsoft’s software suite’s Excel and Word platforms. The customizable nature of both Word and Excel allows businesses to create an invoice tailor-made for their business. Word is better for simpler invoices, as it’s a word processor first and foremost. Excel is great for technical invoices that include calculations for taxes, purchase totals, line items for SKU numbers, and more. Finding the right invoicing software option for your business’s needs requires some research.
Before You Hit Send: Our Top Tips For Creating Great Invoices
When creating an invoice, it pays (literally!) to check and double-check your invoice’s contents before sending it out. Even if you’ve made sure to include all the critical elements of an invoice, there are still some additional strategies that can help take your invoices to the next level.
Here are a few tips for creating an invoice that shines.
1) Make Your Invoices Attractive
While your invoice doesn’t have to be picture-perfect, it should look professional and serve as a positive representation of your business. Formatting is an essential element of the professional invoice. Don’t be afraid to use tables or any other formatting element that makes your invoice easy to skim. Just be consistent. Don’t switch fonts halfway through the invoice or make any other changes that you don’t apply to all relevant invoice elements.
2) Showcase Your Business’s Brand
Making your invoice look good will require your business’s logo, at a minimum. If you don’t have a business logo, it’s not too hard to create one. Canva is a free photo-editing and graphic design tool that can help even the least artistically-inclined person create a professional-looking logo.
Beyond a snazzy logo, your brand colors can also be used on your invoice to enhance brand visibility. You want a customer to know who an invoice is from after just a quick glance. It may be worth taking the time to create an invoicing template that showcases your brand well and using it for all your invoices moving forward.
3) Have Clear Invoice Terms
Invoice terms are set to regulate the payment methods accepted and the payment due date on which your business is paid the money it’s owed. Invoice terms may also set rules regarding late payment fees, advanced payments, and discounts, as needed.
As the business owner, you’re responsible for choosing the terms that make the most sense for your business. Regardless of the terms you choose, make sure they are laid out clearly. You can include a payment terms section on your invoice or keep things simple with a statement like, “Due Upon Receipt” or “Payment Due on January 15, 2022.” The more clear your invoicing details, the sooner your invoice is likely to be paid.
4) Allow Online Payments
By eliminating post office runs, the potential for lost checks in the mail, and the wait time associated with checks clearing, accepting online invoice payments can help your business get paid sooner and with less risk.
Moreover, you’ll appreciate the digital transaction trail come tax time, when you may need to access a complete record of all the transactions your business made during the tax year. You don’t have to remove cash or check payments as options on your invoicing; simply including an online payments option can be enough to help increase quicker, more efficient customer payments.
5) Use Invoicing Software
If you want to create a professional, detailed, and accurate invoice, invoicing software delivers. When it comes down to it, invoice software makes the job of creating an invoice simpler and less time-consuming by walking you through the steps of creating your invoice from start-to-finish. It’s also much easier for a beginner in the world of invoicing to create an invoice from an invoicing template’s software.
Invoicing software typically packs many features which range from auto-scheduling invoices to creating custom invoicing reports for your business. So take your time when choosing the right invoicing software for your business. Take a look at our reviews of the best invoicing software options to help you narrow down your invoicing software options.