Business Invoicing: How To Do It Right
Let’s start with the very basics: what does invoice mean?
An invoice is an itemized list prepared and sent by a business to a client detailing the products or services supplied and the due costs. Upon receiving this bill, the client is obligated to pay for the products or services.
The quickest way to prepare this document is by creating a template that you can repopulate for future usage. Fortunately, there are now invoice software programs that can quickly generate these templates for businesses.
What’s An Invoice
The Cambridge Advanced Learner’s Dictionary states the invoice definition as a list of things provided or work completed with associated costs to be paid at a later time.
However, what is an invoice in accounting?
These documents are integral to a business when it comes to accounting. For instance, they help accountants keep track of accounts payable. Moreover, such statements act as a record in regards to tax obligations. This is crucial for auditing.
Additionally, invoices notify clients of the terms of payment, the payment deadline, penalties in cases of missed payments, and the services an organization provides and specializes in.
What Are Invoices Used For In A Business
Businesses primarily use these documents to record the progress of a sale. Here are their other functions:
- Enables you to request on-time payments
- If you’re a business selling products, invoicing allows you to keep tabs on your inventory status
- These documents track your monthly sales
- Helps you generate financial reports and predict sales
- Invoicing prepares you for tax season
Invoice ID: What It Is
This ID is an exclusive number associated with each client invoice that’s generated by a business. These numbers enable businesses to easily identify a specific bill and track the status of payments. For this reason, they’re considered a crucial element.
The ID itself isn’t restricted to numbers. It can also include letters. Experienced businesses generally have an ID system in place to ensure that a number doesn’t get assigned twice.
How To Assign Invoice IDs?
An ID can be assigned in multiple ways. Here are some of the most common ways to assign this number.
- Successive allocation: One of the most commonly used methods of assigning statements is the default method. This is the technique that most cloud-based invoicing programs employ. Through this method, the first document is allocated a specific number and all subsequent bills are assigned subsequent numbers. For example, # 00001, # 00002, # 00003, and so on
- Linear allocation: This method involves allocating numbers based on the date the document is generated. The first few digits in such an ID typically refer to the date the document was created on. The date is then followed by a series of numbers exclusive to that document. For example, a statement generated on 17th of September, 2020 would be identified as 2020-09-17-4218
- Customer ID: Businesses sometimes involve the practice of assigning their clients an exclusive customer ID. Such a business can use this ID for identifying bills associated with that specific client. In the case of a liner method, the customer ID will first go on a document, followed by a series of unique numbers. For example, for a customer ID 390, the invoice ID may look something like this: 390-0002
- Project ID: When you bill your clients based on the projects you perform, you can use the project IDs to assign your statements a unique number. The first series of numbers on a bill will be the project ID followed by a sequential number. This helps set the documents apart when they belong to one main project
How An Invoice Looks
Now that you know what an invoice is, you can proceed to the next step: what does it look like? Information that goes into this document should be neatly organized, systematic, and readable. The most important details to highlight are the services you provide to the clients and their costs. The following information is also common to include:
- Your business’s contact and address
- Your client’s contact and address
- The ID
- Company registration number
- Terms of payment
- Payment deadline
- List of services performed or products delivered
- Tax rates
- The total amount charged
How The Process Works
Documents for invoicing must be created and issued right after the completion of work. Delay in sending these bills only causes a delay in payments. You can use software to help prepare one. Generally, creating this document takes seconds when done digitally. After proofreading the details, you can send the bill to the client with a single click. Make sure that the template contains all the necessary information listed above to avoid any future inconvenience.
The Bottom Line
Knowing what an invoice is and what an invoice is used for is fundamental in accounting. The key is to create simple yet comprehensive templates that you can dispatch when needed. A streamlined invoicing process helps keep the business workflow running smoothly.