There are many different ways that a small business owner can create an invoice—and that’s precisely the challenge.
Especially if you’re just getting started as an entrepreneur, you may be wondering whether to create these documents manually or to use software right away. Creating invoices manually has its benefits: you can fully customize your templates, aesthetics, and process.
But if you do create your invoices from scratch using spreadsheet or word processing software, you may encounter administrative errors. Moreover, if you’re creating invoices manually, you’ll run into challenges tracking them—and getting paid.
That’s why it’s important to start using accounting software from the beginning. While it may make sense to build your own invoices for one, two, or even five customers, imagine how your efforts will scale across multiple customers.
Eventually, the process of creating invoices may become unsustainable. You’ll run into a situation where you’ll need to hire someone to manage this process. Or, you can pay a monthly fee to use software, at a tiny fraction of the cost of bringing on an employee.
Using software you can manage—and scale—your invoicing process, with minimal effort.
The purpose of an invoice
An invoice is one of the most important documents that your business creates. In addition to functioning as a receipt, it is also your accounting paper trail—it’s an instructional document that guides your customers through the process of paying your business.
That’s why software makes the invoicing process easier. Let’s say you send 10 invoices per month, and the process takes you 1 hour a piece. This is time that you could be using fulfilling services or generating new business. Using software, you can trim your invoicing time down from 10 hours to 1 hour.
You can standardize your templates, quickly query information about payments, and answer customer questions as they come up.
An invoice is an important transactional tool with extremely functional applications. That’s why it’s important for small business owners to create them in a way that is error-free.
The components of an invoice
When creating invoices for your organization or for yourself as an independent contractor, you should be sure to always include the following:
- Header: The word INVOICE should be in large letters centered across the top of the document. This practice will help you signal to your busy customers—who need to filter through many documents on a daily basis—that they need to make a payment.
- Payer’s Name and Address: The company or person that is issuing the payment, along with the mailing address, should be listed. This information will help your customers understand that the document was, in fact, intended for them.
- Payee’s Name and Address: The name of the person or company being paid should be listed, along with the mailing address; the payee’s email address will also suffice. This information will make it easier for your customers to send you a check.
- Itemized Listing of Goods or Services: Depending on the type of work that is being billed, a description of the work that was done should be listed. For example, if the invoice is for a certain product, the product name, quantity, per-unit price, and total price should be listed on the invoice, typically in columns that run vertically on the page. Itemized details are especially important for both yours and your customers’ accounting documentation.
If the invoice is for services (for example, the completion of a design or writing project), then the name of the project, a brief description of the type of work (i.e. graphic design, writing) and the hourly or flat rate should be listed. If it is an hourly rate, the number of hours worked should be included. If payment is per piece, each piece completed should be listed separately.
Underneath the listing of products or services being billed, there should be an invoice total that’s clearly marked to avoid any undue confusion.
- Date: It’s important to include the date the invoice was issued, as well as the date(s) of the work completed or when the products were ordered or delivered—you can discuss this preference with your client and/or business to make processing easier for both of you.
- Invoice Number: An invoice number is not generally required, but it may help in keeping invoices organized. Larger organizations often have complicated billing systems that may require a certain invoice number or code. Remember to discuss this with your client before submitting your invoice. No matter which system you use, be sure that the invoice number goes up incrementally each time it is sent.
- Terms: You’ll want to be sure to note the payment terms. Whether the payer or the payee, it’s important that everyone has an expectation of when the payment is to be made. Most invoices have a 30-day term, meaning they must be paid within 30 days of receipt to avoid any late fees or penalties. This is usually written as “Net 30” on the invoice. Every organization should establish their own payment terms depending on the type of business they do and the type of vendors with whom they work.
Take a look at the following resources that our team has created, below:
- What Is an Invoice? – This article walks through the basics of what makes an invoice effective, in addition to the details that small business owners need to include to get paid.
- The Complete Guide to Invoices – This guide walks through each step of the invoicing process, covering the basics. This resource also features an example from a small business owner, to give readers a more tangible perspective.
- How to Collect Invoices Faster – Getting paid can be a challenge for the small business owner. This guide provides tangible tips to help you get paid faster, with fewer hiccups.
- Use this free online invoice generator tool to create and export an invoice. You can use it as a standalone resource.
Original source: Mediafeed.org