An invoice and the act of invoicing is an inevitable part of running a business. Without this simple document and the details it encompasses, a business would not be able to legally set up, accept and receive a payment for the goods or services that are provided.
Despite the sheer importance of this document for the continuity of any business, it is still increasingly common that businesses experience delayed or rejected payments due to faults in invoices or flaws in the invoicing handling process in general.
That is why we’ve created this guide. To guide new business owners on how to effectively create professional invoices to request payment. We will also go through how to fill an invoice in, and how to send an invoice, so you can avoid having an invoice rejected because of simple mistakes.
What is an invoice?
Before starting to create an invoice, it's important to first understand what it is.
An invoice is a financial instrument that is used to list in an itemized manner, either services or goods provided by a business, that will include details of specific periods of work and the costs associated. It also includes personal and/or business details specific to each entity involved in a transaction. It is an important document for businesses to request payment from a customer/client and also acts as proof of the exchange.
With that in mind, we are ready to go through the steps to create an invoice template that can be easily modified to suit your business.
How to create an invoice?
Prior to the tech boom, invoices were manually written out by hand. Now, online invoices are being created through invoicing software that generates professional invoice templates and automates much of the invoicing process.
Despite these advancements, faults in invoice creation and handling cannot always be mitigated through the use of technology. That is why being able to create an invoice manually is a crucial skill. If an issue arises, you’ll be able to quickly detect where the fault is.
To create an invoice, you’ll need to break your invoice up into at least four to five sections. This can change from industry to industry, or business to business, but generally, by breaking up an invoice like this, you are able to incorporate all the required information in a clear and concise manner.
1. The header of an invoice
The header of an invoice is at the top of the document. Some information that is commonly included in this section is the invoice date, a business logo, and the most important feature, the term “Invoice.” Another key detail that can be added here is the unique invoice identification number or order number if you are supplying goods.
There are many techniques to format the invoice identification number. Most companies will use a combination of letters and numbers. Let’s look at some examples you can use.
You can order each invoice number sequentially
This technique is just as it sounds, where your invoice number will increase sequentially for each invoice generated, per client. For example INV0001, INV0002, INV0003.
You can include a unique customer code
This technique builds on the sequential method, but instead of using a generic code to order your invoices, you can personalize each invoice to the customer you are invoicing. One method is simply abbreviating the name of the company. For example, if you were to invoice Statrys, you could format your invoice number like STAT0001, STAT0002.
You can intertwine the date and invoice number
If you aren’t invoicing multiple customers on a daily basis, you can incorporate the date the invoice is issued at the start of the invoice number. For example, you could format this like 20220914-0001 or 2022-09-0001. If you want to include a customer code as well, this can distinguish invoices more easily when using this technique.
Ultimately, how you format the invoice identification number, and the other details in the header section is up to you. Just make sure each invoice is standardized. Having standardized features help with organizing and storing invoices.
Tip: Check that the correct invoice date is updated each time you create a new invoice. This will save you from any confusion if you need to look up invoices.
2. Business or personal details of transacting parties
This section will include all the details related to you, your business, and the company or individual you are invoicing.
This section will require you to acquire some information from the company you are requesting payment from. Most of the time, a business will provide this information voluntarily, if you are both aware that a business transaction is taking place.
Some of the important details that should be included in this section include:
- Company names
- Tax identifier number or business number
- Business or company address details
- Contact details including email and phone number
Some of these details can vary from being voluntarily provided to mandatory depending on the country of invoice. Specifically, the tax identification number or business/company number. If local laws mandate sales or service tax collection from businesses, then this must be provided. For example:
- All businesses in Australia have to apply for a registered Australian Business Number (ABN) that must be listed on an invoice.
- In India, Goods and Service Tax (GST) numbers are associated with every business.
- In the European Union, VAT identification numbers must be included if the local laws require it.
It's always a good idea to discuss invoicing and payment terms with your customer, especially if invoicing across borders.
3. A table that includes an itemized list of services or goods provided
The table section of an invoice is where you are going to break down exactly what you are seeking payment for. This could be for services provided or goods supplied. Generally, the table will be broken down into three or four columns. Let’s look at what we mean by this.
What to include in the invoice table section
Tip: Ensure that the information in this section is updated to reflect the work or goods that payment is being requested for. Simple mistakes of amount mismatches and incorrect descriptions can reflect poorly on your business.
4. Payment details
Now that you have included all the specific details of what exactly payment is being requested for, you need to get paid. This next section includes all the payment details that you need to provide to enable the customer to facilitate payment.
There are two overarching payment method types, an international or global payment, and a country-specific or internal transfer.
• Global payment method or international transfer
When a cross-border transfer needs to be facilitated, then various international or global payment methods can be provided. Types and details that are commonly provided include:
- For a telegraphic transfer (TT), the SWIFT/BIC code is necessary for cross-currency or cross-border payments.
- For SEPA payments being made within Europe, the IBAN account number is required.
- For PayPal transfers, a valid email address is required to make payment through the Paypal network
Some countries are bound by strict local tax regulations for making and receiving international payments for commercial services or goods provided. This may impact which international payment method you choose to get paid.
Be aware that different international payment methods can incur different fees for a transfer to be facilitated or accepted.
• Country-specific or internal transfer
If you are simply invoicing on your home soil, and both transacting parties are based in the same country, then you can provide local bank account details or payment methods unique to that country to receive payment. Let’s look at some examples below:
- In Hong Kong, you can simply include your bank account number together with your name.
- If you are invoicing in Australia, then the company account holder's name, BSB number, and account number details need to be provided for a local transfer.
There are many accepted payment methods available now, with unique corresponding details attached to each. Preferences can depend on either transacting party and are usually stipulated within the payment terms of the invoice.
The final section is where you should include some payment terms. As mentioned, how you want to get paid must be clearly outlined in the payment terms, otherwise, there may be some confusion from the other party making payment. Some details to consider here are foreign currency exchanges, a due date for payment, and penalties for late payments.
• Foreign currency exchange terms
If you require to be paid in a specific currency, then this must be specified in the payment terms. Currency exchange rates are volatile and constantly changing, so if you need to be paid in a different currency, or your payment requires conversion, the amount can differ depending on the actual confirmed transaction date.
• The due date for payment
Although it is not mandatory to provide a due date for payment, it can help alleviate the chance of delayed payment. Some common time frames that you will commonly see for payment requests are within or by 14, 30, 60, or even 90-day allowance.
• Penalties for late payments
Another payment term that is sometimes included, if your company has specific payment deadlines or schedules to meet, is penalties for late payments. This could be specified as a fee for administration fee for follow-ups for late payments, or interest incurred after a certain timeframe for any delayed payment.
Tip: Having clear expectations is a great way to keep everyone involved in a transaction accountable and organized.
How to fill out an invoice
Now that you get an idea of the types of information that are to be included, let's see how to fill out an invoice. We have included a basic example of an invoice below.
All the invoice information that we’ve mentioned in the above section has been incorporated in a clear and concise manner. Whether you are supplying goods or providing a service will determine how you fill out an invoice, as we have distinguished in our example.
How to send an invoice?
Now that you’ve created and filled in your invoice, you are ready to send off your invoice to its desired destination, so you can get paid for your work or the goods that have been provided. Here are some things to consider before sending off an invoice.
1. The file name of your invoice should be standardized. An easy file name example should include the organization's name, and the invoice or order number. Make sure you check this matches with each invoice you are saving. Standardized file names create an organized system, so you can easily look up an invoice if a payment is delayed or rejected.
2. The format an invoice is saved in should be in a file format that cannot be edited or changed by the receiving entity, or anyone that may receive it. This usually comes in the form of a PDF.
3. You’ll need to ask if the invoice needs to be sent to a specific email address, or to be directed to a specific person or department.
4. Having to chase an unpaid invoice is not only a common occurrence but an incredibly frustrating activity. If you have explicitly stated the due date for payment in your invoice, you should follow up once this time has passed. A follow-up can be in the form of a call or email to the person you had originally corresponded with.
Why would a payment request be delayed or rejected when sending an invoice?
Many of the reasons a payment is delayed or an invoice rejected is due to human error. Here are the top reasons why a payment might be rejected or delayed.
1. An invoice is not sent or handled efficiently or effectively by either entity
2. An invoice is sent to the wrong person or department
3. Missing details or incorrect details
4. A mistake in pricing or items were not itemized clearly
5. Unclear method of payment or unclear preferred payment method
6. Not including a due date for payment
7. Reasons pertaining to delayed bank transfers
At the end of the day, these delayed payments are exactly what a business wants to avoid in order to remain sustainable and successful. As a business owner, you should always pay extra attention to the details you include on your invoice.
With all this in mind, you should now have a pretty good idea of what it takes to create an invoice, how to fill out an invoice, and things to consider before you send an invoice off for your services or products. By following this guide, you’ll have a great invoice template that you’ll be able to modify and make your own.
How to create an invoice?
Can I create an invoice myself?