Need Help?

Get in touch with us and we’ll be happy to help!

  • No products in the cart.
  • No products in the cart.

What is an invoice? Guide, examples, and what to include


What is an invoice? Guide, examples, and what to include


An invoice is a document that details and documents a transaction between a seller and a buyer. Often, a company issues an invoice to a customer once the product or service has been supplied. This invoice informs the buyer of the amount due to the seller and establishes the payment conditions for the deal. In this article, we will discuss the role of invoices and provide a sample.

What is the purpose of an invoice?

Invoices allow businesses to monitor their cash flow by keeping track of their total receivables from customers. They facilitate timely full payments from customers and serve as record-keeping for sales, tracking the date and cost of goods or services sold, and identifying any outstanding amounts due from clients. In the event of auditing, invoices provide a crucial paper trail, offering detailed evidence of your income sources for the IRS to examine during tax return queries. When goods or services are sold, invoice amounts should be recorded as accounts payable for the buyer and accounts receivable for your business.

Is an invoice a receipt?

Despite the similar information contained in sales receipts and invoices, they perform distinct functions. An invoice is distributed to solicit payments from customers, whereas a sales receipt verifies a customer’s payment to a seller. Receipts not only serve as evidence of a customer receiving goods or services they’ve paid for, but also as an affirmation of the business receiving payment.


What’s the difference between an invoice and a bill?

Invoices and bills are both sales records that detail the amount owed by a customer to a vendor, issued prior to payment completion. Nonetheless, some differences exist between these two terms.

Invoice vs. Bill

An invoice is a record of a sales deal where the vendor receives payment for goods or services at a subsequent date. A supplier might refer to this customer payment request as an “invoice” or “sales invoice”.

A bill is a sales document that requires customers to make an immediate payment. Additionally, the term “bill” may also be used by customers when referring to a payment request they owe to their supplier.

What does an invoice include?

Invoices aren’t necessarily standardized. They can vary by vendor or contractor. However, all invoices should include five components:

  • An invoice number
  • A date
  • Business contact information
  • Descriptions of goods and services
  • Payment terms

Invoice number

Each invoice that you deliver should get its unique identification number. This number creates a clear documentation pathway, aiding both you and your customers’ accounting records. It’s best to distribute these invoice numbers in a sequential order, with each new invoice bearing a number higher than the previous one. It’s significant to note that invoices don’t necessarily require immediate payment upon receipt by the customer. If you choose, you can establish payment terms of up to three months for each invoice, providing your customers with some flexibility in their cash management.


The vendor formally documents the transaction and bills the client at a time and date indicated as the invoice date. This date is highly important as it determines the due date for payment and the period of credit. Typically, the payment due date is set 30 days after the invoice date, but it can be adjusted depending on the requirements of the company and the stipulations of the agreement with the client or buyer.

Business contact information

An invoice should include your business’s contact details such as name, address, phone number, and email address, in addition to the information pertaining to your client or buyer.

Descriptions of goods or services rendered

You should enter every product or service you provide as a line item on your invoices. Include price and quantity for each line item. At the bottom of the invoice, add up all of the line items, and apply any tax charges.

Here’s a quick checklist of what to include when listing products or services provided:

  • The date you completed service
  • A description of services that specifies what you provided at the unit level
  • How many units your customer ordered
  • The rate per unit
  • The total number of units
  • The total amount due
  • Any applicable tax

Payment terms

Encourage prompt payments by giving precise payment expectations. The payment terms you establish should disclose the timeframe a customer has to pay for a purchase they’ve agreed to.

To optimize your cash flow and the odds of payment collection, select invoice terms that promote early payment. You can opt for options like collecting half of the payment upfront, getting partial payments across a period, or demanding immediate payment once a task is completed.

When establishing payment terms, think about how you will manage late payments and consider a customer’s credit history, especially for significant sales.

You must then conclude on the duration a customer has to clear an invoice. “Net 30” or “N/30” is a common payment term that requires customers to pay their bill within 30 days of the invoice date.

Take note – 30 days doesn’t equate to one month. For instance, an invoice dated March 9 requires payment by April 8. Businesses can also establish invoice terms like Net 60 or Net 90 based on their specific needs and preferences.

Various invoice payment terms exist, implying choosing suitable ones for your business is crucial. The chart below provides some commonly used payment terms for your consideration.


Common types of invoices

Customers can be provided with various invoice types, contingent on the objective of the invoice. Here are a handful of the typical invoice types that may be utilized during the payment procedure.


Pro forma invoice

A pro forma invoice is delivered to the customer prior to the provision of a service or product. These invoices are used by businesses to help customers comprehend the scope and expense of a prospective project. They are dispatched prior to a formal invoice to provide an estimate to customers about the expected cost of a service or product post-delivery. Although adjustments might be needed in the terms of a pro forma invoice as a project evolves, they serve as a valuable mechanism to ensure both businesses and customers have aligned expectations before the initiation of work.


Interim invoice

Interim invoices are dispatched during large projects that necessitate multiple payments. They function as progress payments for clients as different stages of a project are completed. The use of interim invoices benefits businesses by aiding cash flow management, as it enables intermittent collection of payments throughout the project timeline. Thus, interim invoices allow for cost coverage related to the project as various portions are finalized, rather than waiting for the project’s completion to receive payment.

Recurring invoice

Invoices that recur are usually provided to obtain repeated payments from customers. They are commonly issued in the span of an ongoing project. For instance, to charge for their services, a marketing agency might bill its clients via a recurring invoice on a monthly basis. Automating the invoicing process can be beneficial for a business that frequently charges the same amount to a client, as it can decrease the workload related to crafting and delivering invoices.

Credit invoice

When a company needs to give a customer a refund or discount, it issues a credit invoice. This invoice features a negative figure representing the cost being reimbursed to the customer. Suppose a client was mistakenly overcharged for a service, a credit invoice detailing the overcharged amount can be issued. This serves as a formal record indicating the refund given to the customer.

Debit invoice

A business releases a debit invoice when there’s a need to augment the amount owed by a client for a product or service. Say you undersold a service to a client, the project’s size expanded, or you spent more hours working on a project after an invoice was sent, a debit invoice can be used to balance the increased cost.

Past due invoice

An invoice that is past due is an unsettled bill that has exceeded its due date; it signifies that your client or customer has failed to make payment according to the agreed terms. Such overdue invoices can adversely affect business cash flow, while the effort to recover these late payments can be time consuming and draining for business owners. Therefore, to minimize the likelihood of an invoice becoming overdue, it may be beneficial to produce clearly-written invoices that are straightforward to understand. Offering diverse payment alternatives can also contribute to a decrease in overdue invoices. Business owners, for instance, might want to consider offering pay-enabled invoices, which enable customers to settle their bills directly from the online invoice.

Commercial invoice

Commercial invoices are customs documents used when a person or business is exporting goods internationally. The information included in commercial invoices is used to calculate tariffs.

There is not a standard format for commercial invoices, but some specific pieces of information are required:

  • The name, address, and phone number of both parties involved in the transaction
  • The goods being exported and reason for export
  • A description of the goods being shipped, including what the item is used for, the number of units being shipped, and the value of the units
  • The country or territory of origin
  • The Harmonized System code assigned to the goods being shipped
  • The number of packages being shipped and their total weight
  • The shipper’s dated signature

Best practices for writing an invoice

When constructing an invoice, consider these suggestions to ascertain that both parties have a mutual understanding regarding payment requirements.

1. Write clear product descriptions

For those running a service-based venture, make sure to provide your project’s title and outline the tasks you undertake. If you deal with various products, add your SKU or product ID in the detailed list featured on your invoice.

2. Differentiate purchase orders and invoices

Purchase orders and invoices are often mixed up, however, they fulfill different roles.

Typically, sellers produce invoices, while buyers generate purchase orders (PO). A purchase order acts as a buying agreement between a buyer and a seller.

To illustrate, if a local café wishes to acquire five crates of espresso from their preferred supplier, the café owner may complete a purchase order during the product purchase. Upon receiving the coffee, the supplier will then create an invoice.

3. Offer online payment options

To streamline your invoicing efforts, make the payment process easy. Provide customers with an easy way to pay your invoice to encourage on-time payments and improve their experience with your company. Using QuickBooks, you can create electronic invoices and accept payments from one location, improving the overall transaction for your team and your clients.

When should invoices be issued?

Once an order or service is completed, promptly generate and dispatch an invoice. Delaying the invoicing process might result in postponed payments, while punctual billing aids in enhancing cash flow. Monitoring metrics such as days sales outstanding (DSO) and the accounts receivable turnover ratio will assist you in assessing the pace of payments and the efficiency of your accounts receivable management.

How long should you give someone to pay an invoice?

During the sales process, set clear payment terms specifying the duration customers have to settle their invoices. While Net 30, indicating 30 days, is a frequent time frame for payment, it’s essential to select terms that align with your business, the client, and the nature of the transaction. The spectrum of options spans from upfront payment to net 90 terms, which grant customers 90 days to clear their dues. The project’s cost and intricacy might influence the payment terms you opt for.

Are invoices legal documents?

No, invoices are not legally binding documents on their own. Invoices do not contain proof that a business and its customer have agreed on the terms of payment outlined in the invoice. To reduce the chances of a disputed invoice, businesses may create contracts that outline the details of a transaction. Contracts signed by both parties can act as legal documents, reduce the chance of misunderstandings about transactions, and may help speed up the payment process.

What happens when a customer refuses to pay an invoice?

Occasionally, customers might contest an invoice they receive. In such instances, the initial step involves addressing the dispute. Begin by discussing with the customer to understand the specific parts of the invoice they find objectionable. While many disputes can be settled through dialogue, there are instances where legal action becomes necessary if a consensus isn’t reached regarding the contested invoice components.

On the other hand, there might be instances where customers have no issues with the invoice’s content but have simply missed the payment deadline. In these cases, promptly reach out to your customer concerning the overdue invoice. If your efforts to obtain the payment fail, you can explore options like invoice factoring or resorting to legal measures. Encouraging customers with incentives like early payment discounts or imposing penalties for delayed payments can be effective in ensuring punctual payments.

Using accounting software to automate invoicing and accept payments

QuickBooks Payments simplifies the process of generating polished invoices and consolidating payments, enhancing the transaction experience for both your team and your customers.

Through its invoicing capabilities, QuickBooks Payments enables you to process payments, dispatch personalized invoices, and utilize auto-matching for efficient accounting. As a result, your financial reports update instantly, ensuring your accounts receivable and bank account details remain current.


Invoices play a crucial role in enabling business owners to document sales. By creating comprehensive and clear invoices and adhering to a systematic invoicing method, you not only position yourself accurately for potential IRS audits but also enhance your chances of consistent and timely payments.

Schedule a complimentary QuickBooks data file review today for a quick and easy QuickBooks health check.



Still Have Questions? We’re Here to Help.

Talk with an Expert