Invoice Number - What It Is and How to Use It Correctly

Despite being a small feature, the invoice number is arguably one of the most important things that are listed on an invoice. You will usually find this unique sequence of characters at the top of an invoice in the header section.

That is because every new invoice should have a unique number generated to help sort and identify invoices in an accounting system.

Throughout this how-to guide, you'll learn everything there is to know about the underlying purposes invoice numbers serve. You'll also learn how to formulate your own unique invoice numbering system that best suits your business needs and some common mistakes to avoid.

What is an Invoice Number?

An invoice number is used as an identifying and organizational feature on an invoice. Invoice numbers can help a business keep track of its expenses and incoming payments in an organized manner.

It can be made up of just numbers, letters, unique characters, or a combination of these. The invoice number is usually located at the top of an invoice in the header section.

What is an Invoice?

An invoice is an official bill of sale document used to request payment for goods or services provided by a business. Invoices are important for budgeting purposes as they provide tangible evidence of outgoing expenses and incoming payments. An invoice is formatted including the following details:

• A unique invoice number
• Business details of both parties involved in a transaction
• Issue date and payment due by date
• Description of the goods or services provided
• The costs and taxes associated with the goods or services
• The terms of payment and where to make payment

There are several types of invoices that are used for different purposes, in different industries, and with different legal statuses. Types include the proforma invoice, commercial invoice, or final invoice.

📖Want to learn more? Read the full article about what is an invoice.

Why Invoices Need Invoice Numbers

Assigning invoice numbers to each invoice helps your business run effectively and smoothly. Using a unique numbering system can be a simple way to organize invoices for tax and accounting purposes.

Here are some ways that assigning unique invoice numbers can help your business.

Group invoices effectively by customer profiles

You can formulate invoice numbers that easily identify a customer or client. This means you can group invoices together and be able to gather any information about the work or goods provided quickly. If you need to:

Locate invoices quickly when needed and track payments

You can assign invoice numbers that can identify customers or clients specifically by using a few characters or number sequences.

You can also organize an invoicing system that will help you determine when an invoice has been paid or needs payment. Avoiding duplicate payments and having all your invoices paid promptly keeps your business running smoothly.

Quickly clear up any disputes or miscommunication on work or payments

Having a systemized invoice number structure can help you backtrack and find invoices quickly to clear up any disputes on past work or miscommunication between you and the customer.

This could be regarding past payments, mismatched payments, services or goods provided, invoice issue dates, or dates payments are requested.

Help organize and sort your finances to be ready for tax audit time

Tax time is a stressful time for all businesses, so a major goal is to make all operational processes as effective and efficient as possible. This is never more true than when meeting any tax compliance obligations.

One way to make lodgements to your respective tax authorities easier is through an effective invoice numbering system. This will help quickly find all relevant invoices to prove your business is running compliantly.

An effective invoice numbering system can also help if there is a request for specific financial information or a particular invoice from a specific time frame.

If an accountant or tax specialist is consulted, an effective numbering method can significantly help and show professionalism in how a business operates.

How Do You Create a Unique Invoice Number?

There is no set format that every business follows to number invoices. However, there is one standard rule, and that is to use a sequential numbering system. How you formulate your invoice number sequence is purely based on personal preference.

Here are the ways that invoice numbers can be assigned to each invoice.

The basic configuration  

Some people prefer to keep things simple and use sequential invoice numbers using only numbers. This may be problematic as a business scales and takes on more customers or clients.

Usually, basic invoice numbers will not have any identifying characters or allocated references to a particular client or timeframe.

Here are two examples of a basic invoice number system:

• Invoice numbers: 01, 001, 0001, etc.
• Invoice numbers: 1, 2, 3, 4, etc.

You may notice that the number of zeros changes in the above example's left box. Using zeros before your sequential invoice numbers, systematically set up your invoice to cater to a high number of subsequent invoices. The example to the right is a less common way of numbering invoices, but technically speaking, it works the same.

The complex configuration

A complex configuration combines alphanumerical characters that make up an invoice number. Again, this system is designed on personal preference but will usually follow a sequential numbering system. A complex configuration of several numbers and letters can identify one or more factors about the invoice being issued.

Usually, if complex alphanumeric invoice numbers are used, the sequence will not be random but a system well thought out by a business owner or payroll team. Here are how to number invoices using a more complex invoice number format.

Using company letters or an abbreviation of a company name as part of the invoice number

Including part of a company name or an abbreviation of a company name in an invoice number can make grouping invoices much easier than using just number formats.

Using alphanumeric invoice numbers can make sorting invoices easy for businesses with large customer bases.

When invoicing the company Statrys, the letters "STAT" or "ST" could be used at the start of the sequence. Generally, when this numbering system is used, it would be followed up with a simple configuration matching the invoice number that is being issued.

💡Quick Example: Using Statrys as an example, our invoice numbers would be STAT001, STAT002, STAT003, and so on.

Allocating a number to represent a company, customer, or project

Instead of using letters in an invoice number to identify the customer or client, you can allocate a client number. This number could be based on the procurement of work or randomly chosen.

If you have multiple projects with a customer, you can be even more thorough and allocate a project number. This could be useful if payment is broken up into different parts.

For example, Statrys is the 51st client to whom a business has provided work or goods. The business requesting payment uses a sequential system when allocating a representative customer number. In this case, the number 51 represents the company Statrys.

💡Quick Example: When formulating the first invoice, the invoice number will read as 51-001

Assign the date of issue as part of the invoice number

Another way to format your invoice numbers is by using the date the invoice is issued. This could be using the full date or omitting the day in the numbering sequence. This means your invoices will be organized by month and year only.

A simple way of formatting the date into an invoice number is 01012022 or 01-01-2022. After the date, a simple sequential invoice number such as 001 or 01 should follow.

This variant can be done in many ways. If multiple invoices are issued on the same day, the tail end of the invoice number can be reflected as a sequential number as the invoices are completed.

💡Quick Example: It can be written as 01012022-002, 01012022-003, and so on. Again, the number of zeros used is based on personal preference.

What To Avoid When Numbering a New Invoice

Here are some common mistakes to avoid when choosing your invoice number system.

• Using just sequential numbers can run the risk of duplicating invoice numbers
• Assigning random invoice numbers that have no clear identifying feature
• Starting your invoice numbers from a random high number to have a reverse chronological invoice numbering system
• Forgetting to add the invoice number all together

Conclusion

These days, invoicing and accounting software can do the hard work for you by automatically generating unique invoice numbers.

However, it's always good for new and small business owners to learn the invoicing basics to provide adequate oversight of new invoicing software.

Many factors can influence how a business formulates invoice numbers. Most of the time, the first invoice number formula will change. This will usually be to cater to when a business grows, expands, or there is a need to become more organized. Whether a simple or complex system of invoice numbering is used, the invoice number system should remain consistent from one invoice to the next.

However, no matter which type of invoice tools or methods you need to use, we recommend applying a unique invoice number that helps differentiate each invoice you issue or receive from each business.

📖Want to learn more? Read the full article about creating your own invoice template.