An invoice is a document the seller issues to a buyer to indicate the price for goods sold. The document becomes legally binding if it includes terms of the payment, names of the parties, and cost of the goods. A well crafted invoice helps with proper record keeping and speedier payment. Approximately 70% of businesses that provide detailed payment instructions on their invoices experience improved payment times. 

Documents should be labelled clearly with the correct information. An invoice also serves as a record for accounting and tax purposes. The document should have clearly marked dates to show when payments are due and can be useful during a tax audit.

There are six types of invoices you can create. The ideal type will depend upon your business and the circumstances. They include:

• Interim invoice: An interim invoice breaks down the payments into multiple bills. Businesses may send interim invoices on a monthly or quarterly basis. Interim invoices are used to manage cash flow when working on larger projects.
• Past-due invoice: A past-due invoice is sent when the customer has not completed the payment or has defaulted. Late payments can lead to cash flow problems for your business. Therefore, the past-due invoice should be sent as soon as the due date has passed. It must include all the necessary information, including when the payment was due.
• Credit memo: A credit memo is a document issued when there is a discrepancy in the payment of goods and services. A business may send a credit memo when the goods supplied by the vendor do not match the purchase order.
• Proforma invoice: A proforma invoice is not considered to be an actual invoice. It is not a demand for payment and is not part of account payable or account receivable. It's similar to a quote or an estimate.
• Final Invoice: You may send a final invoice after completing the delivery of goods and services. It includes a list of products or services and includes the total cost, due date, and payment terms. It differs from the proforma invoice in that it is a demand for payment after meeting the terms of the purchase order.
• Recurring invoice: A recurring invoice is a bill issued to a client for products or services delivered on an ongoing basis. If a client orders three products weekly, you can create a recurring invoice for those items. The invoice can also be sent monthly or quarterly depending on the agreement.

An invoice includes the basic details of goods delivered or the completed project. The information must be presented in a way that is easy for the client to understand. The following are the principal elements of a typical invoice:

• Header: The document header may have the company logo and the word ‘invoice.' In some jurisdictions, the term invoice must be included for the invoice to be legally binding. The client's information is usually on the top-right side of the invoice, and your business details are on the opposite side.
• Date of invoice creation: Include the date so that the client knows when the invoice was created. Dates are critical for accounting and reference purposes.
• Invoice number: The invoice will also include a unique invoice identifier, useful for internal audits, and customer reference.
• Customer name and address: The client's correct contact name and address confirm the document is meant for them. Otherwise, they may flag the invoice, leading to a delay in payment.
• Seller's business name and address: The company name and address indicate to the client the invoice is from your business. Other contact details like phone number and email address may be included. 
• Line items: A listing of the products and services (flat fees, hours worked, etc.) and quantity sold to the customer.
• Payment terms: The invoice should clearly state the terms of the service, including the due date and penalties for delayed payment. These payment details are critical elements of the invoice required for the document to be legally binding.
• Cost of goods sold: Cost of goods sold includes the price of individual units.
• Tax rates: Ensure you include the correct tax rate to avoid delays.
• Footnotes: You can add a personalised note to the client at the bottom of the document.

Invoice quickly

The sooner a client gets an invoice after work is completed, the quicker they can start processing the invoice for payment on their end. Invoices take time to process, and most businesses start with the first invoices they’ve received every month. The sooner it's in the buyer’s payment process, the sooner it's paid. Invoice software usually includes professional invoice templates to get you started. 

Ensure all data is correct

Incorrect information on invoices can create huge delays in receiving payment. 61% of late payments are due to incorrect invoices. Anything from an incorrect contact email address (recipient doesn’t get the invoice) to the wrong products or services being listed (recipient doesn’t agree with the invoice) to the wrong price (invoice doesn’t match the recipient’s estimate or expectations), causes an automated process to break down. Phone calls or back and forth emails are required to fix them. Integrating with other business processes, like a customer relationship management (CRM) tool or project management software can reduce manual data entry that can generate errors.

Offer integrated payments

Offering online payments like credit cards, bank transfers, or PayPal can speed up payment as customers don’t need to do a cheque run to pay their invoices. Integrated payments also have the benefit of automating the deposit of funds into the vendor’s bank account. 

Send automated reminders

Remind customers who haven’t paid on time with gentle automated reminders from online invoicing software.

The creation of professional invoices is crucial for the smooth invoicing operation of any business. It not only facilitates timely payments and aids in cash flow management but also serves as an essential record for accounting and tax purposes. Businesses can significantly enhance their invoicing process by understanding the different types of invoices, ensuring the inclusion of all necessary elements, and adopting best practices such as prompt invoicing, accuracy in contact details and data, integrated payment options, and automated reminders. This approach streamlines financial transactions and fosters strong relationships with clients by ensuring clarity and professionalism in every transaction.