How Does An Invoice Work?
An invoice is an itemized bill for goods or services to be paid at a later time. Note the word “itemized,” meaning that each item on the bill or each charge is listed separately. Also, note that the invoice includes information on when the customer must pay (more on this later).
Invoices vs. Bills, Receipts, and Purchase Orders
Invoices are essentially bills, but they are more complex than a simple bill because they are itemized and they include terms of payment. Invoices are also different from receipts. Invoices are sent or given to the customer before payment, while receipts are given to the customer to acknowledge their payment. A purchase order (PO) is generated by the seller before the products or services are given to the buyer. The PO is an agreement that creates a binding contract between the two parties. Both the purchase order and the invoice should match on all terms, including price.
Types of Invoices
Here are some examples of types of invoices:
A website designer might list web design, SEO (search engine optimization), and images. A freelance artist might list work on branding a new business, separating out the hours worked and rates for a logo, business cards, and website. A cleaning service might bill monthly for offices cleaned for an accounting firm with multiple locations.
Sections of an Invoice
Here are important sections of an invoice: From/To: Include the name, address, phone, and email of both buyer and seller. Identity the Invoice: Create an identification number and show the date the invoice was created. Due Date and Terms: The due date and the terms (explained below) should be linked to the invoice date. Purchase Order: If there is a PO, include this number to tie the two documents together. Description: Include a description of each line item and amount. If there are quantities (like hours or boxes), include the quantity and the unit price for each quantity and the amount (quantity times unit price). Tax Rate, Tax, and Other Charges: If you must charge sales tax, include this information. If there are separate shipping or handling charges, you can add these here or in the items above. Total Due: Total up all items plus sales tax and other charges.
Invoice Terms and Discounts
An important part of any freelance invoice is the terms—when the invoice must be paid and what happens if it isn’t. You can ask for payment in full upon receipt or have a due date (usually within 30 days). Then, describe what happens if the amount due isn’t paid by the due date.
Using Invoices to Get Paid Faster
Speaking to The Balance, experienced freelancers and business owners share their tips to help you get your invoices paid faster.
Get a Deposit Before You Begin Work
Kathryn Hendershot-Hurd is the owner of Virtual Impax, a digital marketing company, and a founding partner in Advanced Wellness Solutions. She says requiring a deposit from new clients has helped her weed out a lot of clients who are going to be slow/no pay. When someone balks at paying a deposit, she suggests, don’t look at it as losing a client. Look at it as avoiding an invoicing nightmare in the future.
Be Proactive and Keep the Lines of Communication Open
Hendershot-Hurd says that when an invoice isn’t paid within 30 days, she contacts the client, always assuming some third party is to blame for this client’s failure to pay. Even if it isn’t, it allows the client to save face.
Allow Several Payment Options
Justin Bosco is the President of Form + Function, a digital marketing agency. He says that offering several methods of payment provides more flexibility for the clients. Offering the ability to pay with a credit card helps clients who might be short on cash when they receive an invoice. Bosco notes that avoiding the hassle of having to send a check significantly cuts down on transit time. He also likes using payment processors like Stripe for recurring payments.
Communicate Terms Upfront
Rory Thomas is the Managing Partner of Thomas Group Printing, a commercial printing business in New York City. He discusses payment and credit terms upfront when his firm first takes on a job. His company typically requests that the client place a card on file and preauthorize charges when their invoice becomes due or after the job is delivered and the client confirms they’re happy with the product. Thomas says that in a business with high materials and equipment costs, getting paid quickly has been essential.
Software and Other Freelance Accounting Resources
You can invoice customers in a variety of ways. Most freelance accounting systems give you options. Check out how each system’s billing works to see if it meets your needs. Ask about the ability to accept multiple types of online payments.
