Is An Invoice A Legal Document?
Is an invoice enforceable in a court of law? Does an invoice need to be signed to get paid? Are bills sent via online invoicing software legitimate?
An invoice is a document that specifies the sold goods or services, and the amount owed by the client to the supplier. However, such a bill may or may not include the agreed-upon terms of payment. Also, without a mutually agreed upon contract, the legitimacy of an invoice as a legally binding document can fall drastically.
Learn all the important invoice legal terms you need to know, including ways to draft a binding contract alongside your invoice to create an enforceable invoice in the eyes of the law.
What Makes A Document Legally Binding?
An invoice is not a legally binding document alone. However, when you agree on terms in a legal contract with the client, you can hold them accountable for payments in exchange for goods or services. An invoice, coupled with a contract, creates a legally binding situation for all parties involved.
A legally valid document lays down agreed-upon actions and responsibilities for the client and the supplier including the approval signatures of both parties. In order to ensure that your invoice is admissible in a court of law, it should contain the following two parameters.
- Both Parties Must Agree: A client and supplier must agree on the offer put forth by one party and approved by the other party.
- A Transaction Must Occur: Suppliers should offer goods or services in exchange for payment made.
A non-binding contract is a failed agreement which gives business owners little to no protection. Take a look at the following example to learn how to avoid it.
Suppose you billed a client $500 for five hours of work. If the customer had not previously agreed to your payment terms of $100 per hour explicitly, or if you have not delivered services by the time of billing, you cannot hold the client accountable for invoiced payments.
Drafting Your Own Contract
Creating a written contract alongside your invoice that includes the rates, payment terms, and provisions is crucial for avoiding confusion, disputes, and loss of payments. Keep reading to explore the three must-have components for a binding contract.
To ensure that your invoices are legitimate, you need a binding contract that specifies the rates of services unambiguously. While you can discuss and negotiate the price per item or project beforehand, agreed-upon rates must be quoted exactly in the contract to validate them. If your contract includes hourly rates, specify the maximum and minimum hours you agree to work on the project as well.
Remember that a key factor is estimating the right pricing for the goods and services you offer to prevent underpayment or overpayment. Experts suggest suppliers include their expenses, latest pricing, and tax calculations when assessing pricing.
These are the explicit conditions under which a client completes the sale, and transfers funds in exchange for goods or services. They must include all basic elements such as due dates, overdue payments, payment methods, and other provisions relating to payment. If you have clients that you charge periodically, add a retainer agreement to the contract too. Don’t forget to add elements that seem obvious, but may not be obvious to the client - particularly if a dispute arises.
Pay attention to these commonly forgotten points too:
- Due Date: The contract must specify how long it will take you to get paid from the date of sending an invoice and/or completing the work or delivering the goods.
- Payment Methods: One or more payment methods that are acceptable to both the parties.
- Total Revisions: If you are a service-based business, it is best to specify the maximum revisions you will offer per client before reverting to hourly or fixed rates, in case a client asks for unlimited changes.
- Copyright Terms: Specify which party owns the copyright to the submitted work once the payment is completed.
Late Fees/Cancellation Fees
It is not rare for clients to delay payments or rescind a project on which you already started working. In either case, the supplier suffers the loss. In order to prevent these losses or minimize potential damage, including overdue fees and kill fees in the contract is a must.
- Penalty Charges For Late Payment: Quote a percentage based on the total invoice amount and the total number of days past the due date.
- Kill Fee For Cancellation: You can quote a flat-rate kill fee or create a strategy to determine a kill fee by the amount of work completed before each cancellation.
Typically, freelancers create contracts where the kill fee is often factored into a non-refundable deposit. Another clause to make clients pay promptly and avoid any issues is an early payment discount clause in the contract, where you offer a discount for early payments.
An invoice by itself is not a legally binding document. If a bill was legally enforceable on its own, scam-suppliers could create endless fraudulent invoices and demand payments from their customers.
For this reason, contracts are must-have documents for business owners in order to avoid negative cash flow due to disputes, potential loss of funds, and wasted resources.
Create a mutually-agreed upon contract as an inseparable part of your invoicing system to ensure your business practices are airtight and you are protected in case a dispute arises.