Invoicing can be a stressful process for business owners and freelancers alike, especially when you are just starting out and don’t know all of the ins and outs. Fortunately, there are some basic invoicing questions that can help you get a handle on the process and make sure you are doing it right. We will cover 7 common questions that many are afraid to ask, so that you can get your invoicing back on track.
Invoicing is one of the most important aspects of running a business. Without proper invoicing, it can be difficult to track payments, manage cash flow, and maintain accurate records. However, understanding invoicing basics can be daunting. To help you out, we’ve put together this guide to answer 7 basic invoicing questions you were afraid to ask.
An invoice is a written document sent to a buyer from a seller detailing the goods or services provided, the cost of those goods or services, and any associated taxes. It should include the seller’s contact information, the buyer’s contact information, a description of the goods or services provided, the cost of those goods or services, and any applicable taxes.
2. What are the different types of invoice?
Invoices come in many varieties, each with their own name. Here are some of the more common ones:
If you send an invoice, then it’s a sales invoice (if you receive it, it’s a purchase invoice).
Past due invoice
When an invoice hasn’t been paid, some businesses will resend it with an overdue stamp on it.
If you require progress payments on a big piece of work, you could send an interim invoice. They’re usually issued monthly, and charge for the work done during that period.
If you charge your customer the same amount every time, you can just send a recurring invoice. These are great for subscriptions or leases.
Pro forma invoice
A pro forma invoice shows items and costs, but they’re not a legal record of a sale. They’re usually used as price quotes.
While the prices on a pro forma invoice can change at any time, a commercial invoice is legally binding. If you issue one of these, you can’t change the price until the invoice has expired. These are usually sent with a bill of lading on freight orders.
Credit memo or credit note
A credit note reverses a charge from a previous invoice. They’re issued when goods are returned or when a customer is overcharged.
The last in a series of interim invoices, a final invoice signals that the work is complete and that no other invoices will follow.
3. What do I put on an invoice?
An invoice needs to identify the buyer and seller, the goods or services they exchanged, and the costs charged. It should also carry the date of issue, and a number (or code) that distinguishes it from all your other sales invoices.
4. When does my invoice invoice get paid?
In theory, an invoice gets paid when you say it’s due. In reality, a third will be late. Finances can get really tight while you’re waiting. To keep those cash droughts to a minimum:
5. What is invoice accounting?
Most invoices get paid. Some – hopefully very few – don’t. In either case, there are credits and debits to enter into your business accounts. A bookkeeper or accountant can help you get this right. And if you send invoices on accounting software, a lot of the book entries are done automatically.
6. What is invoice reconciliation?
Invoice reconciliation tells you which invoices have been paid and which haven’t. You do it by checking bank deposits for customer payments, and matching those payments to specific invoices. When an invoice is settled, you take it off your watchlist.
If an unpaid invoice goes past due, you should follow up the customer to chase payment. Invoice reconciliation can be painstaking but, as with invoice accounting, you can automate the process.
7. Are invoicing and accounts receivable the same thing?
Yes, invoicing and accounts receivable are essentially the same. They’re all about keeping track of what you’re owed. Some people think of invoicing simply as sending bills, but it’s much more than that. It’s a process that begins when you agree payment terms with a customer, and only finishes when they pay you. There can be a lot of steps along the way.
Invoicing is crucial to operating a business, facilitating payment tracking, cash flow management, and accurate record keeping. The article explains the invoicing basics, including what an invoice is and the various types of invoices: sales invoices, past due invoices, interim invoices, final invoices, recurring invoices, pro forma invoices, commercial invoices, and credit notes. Each serves a specific purpose, from signaling completed work to reversing charges for returned goods or overcharges. Important details on an invoice include identification of the buyer and seller, description of goods or services, costs, issuance date, and a unique identifier.
Invoice payment is ideally based on the specified due date, though a third of payments may be late, necessitating strategies for timely payments like shorter due dates, pre-agreed payment terms, prompt invoicing, and immediate follow-ups on overdue accounts. The article also explains invoice accounting and reconciliation, two processes ensuring appropriate credits and debits are entered into business accounts and paid invoices are accurately tracked, respectively. Lastly, it clarifies that invoicing and accounts receivable are the same, both dealing with tracking owed payments from the point of agreement to final payment.
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