An invoice is a commercial document shared with a customer or client, often after the delivery of goods or services. Invoices are used to request payment from your customers, detailing the goods or services provided.
"Invoicing well and on time is essential if you're to build and maintain financial stability, foster trust between you and clients, and ensure overall smooth business operations," says Jennifer Farge, Head of Finance at Be the Business. "Beyond this, a proper invoicing process empowers you with information to make better business decisions."
Invoices ensure your business gets paid and maintains good cash flow management. Here we look in more detail at what to include in your invoices and how to choose the right type of invoice for your business, before sharing an invoice template that you can customise to suit your needs.
Key elements of an invoice
"An invoice should be an itemised list that records the products or services you provided to your customers, the total amount due and a method for them to pay you," explains Samina Hussain-Letch, Head of Industry Relations and Payments Partnerships at Square, a software platform that supports businesses selling online.
Invoices should always include the following elements:
- Your business name and contact information, including your address.
- Customer’s name and contact information.
- Unique invoice number, also called a reference number.
- Invoice date, which is the date you issue the invoice.
- Payment terms, detailing the time period you expect to be paid and late payment fees.
- Description of the goods or services being sold.
- Quantity of each item being sold.
- Total amount due, or the total amount payable by the buyer.
- Tax due on the sale.
- Discounts and fees applied to the sale.
Payment terms are one of the most important elements of an invoice, helping you to maintain financial stability by minimising the risk of late payments. Terms must provide clear expectations to your clients of how and when payment should be made, says Farge. They should include the payment due date, payment method and whether a deposit is required.
Michael Hall, Account Manager at DSL Accounting, says payment terms for his company were historically 31 days after the completion of work provided. However, over the past few years, these have been adjusted to monthly payments throughout the course of a project. A move that has helped both DSL and its clients to better manage cash flow, ensuring they are paid on time while also building stronger client relationships.
"We have had feedback from clients that having a monthly invoice makes them feel that they can ask for advice and help on an ongoing basis, more than when we were simply invoicing for a specific piece of work once a year," Hall shares.
In addition to the standard elements above, you may also wish to include additional details such as a 'thank you' message, or even issue a remittance advice slip following payment.
Farge says that incorporating a personal note, such as expressing gratitude, might not be compulsory but it certainly exemplifies 'good manners.' These small professional courtesies can go a long way when it comes to client relationships.
Monitoring and tracking your invoices is so important for maintaining a positive cash flow, but managing incoming payments from multiple clients, as well as outgoing payments to suppliers or vendors can be time-consuming. With an American Express® Business Gold Card, you get up to 54 days to clear your Card balance¹, allowing you to keep your money in the account for longer, giving you more flexibility in your cash flow and a buffer should clients miss a payment deadline.
Invoice example
The name of your business and contact information, as well as that of your client, should always be clearly visible on all your invoices. Beyond that, Farge emphasises the importance of using a clean design and format, with a legible font and minimal abbreviations, as these can cause misunderstandings and therefore later payments.
Below is an example of a clear and simple invoice, with the key elements such as business details, total amount due and your payment terms.
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Invoice template
Consistency is essential when it comes to invoicing. "Using the same structure, template and communication practices for all invoices will help establish a routine for your clients and cement your reputation as a trusted business," says Hussain-Letch.
It also makes it easier for you, as using the same template and process will save you time and reduce the risk of errors, such as key elements being accidentally left out. You can download and customise our template below to get you started.
Download our generic invoice template here.
Types of invoices
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Depending on the nature of your business, products and services, there are different types of invoices you can use:
Standard sales invoice
A standard invoice is sent from a business to a client, requesting payment for a product or service that has been provided. If the client doesn't pay the invoice within the specific payment period shared in the invoice, it becomes overdue.
Proforma invoice
A proforma invoice is an estimate sent to the buyer before a shipment, delivery or work is completed. "These invoices are used for the creation of sales rather than a confirmation of a sale," says Hussain-Letch. "It is a commitment to the upcoming goods and service and cannot be used for accounting purposes," she explains. "Instead, a proforma invoice is used more as a quotation."
Final invoice
This is the last invoice sent to a client, that details all the work that has been completed and any outstanding amount due to be paid. You may issue a final invoice to cover a broader period of work, services or deliveries.
Timesheet invoice
These are used to bill clients based on the number of hours, or the time, that you or your staff have worked on their project. They are often used by consultants, lawyers and other professional services.
Interim invoice
Sometimes it can make sense for a client to pay in more manageable instalments, rather than a single sum when everything is finished. This is known as an interim invoice. They should be followed by a final invoice detailing all the work, what has been paid for and any outstanding balance, says Hussain-Letch.
Retainer invoice
These are sent to a client before work starts, requesting an advance payment for goods or services. This works like a deposit or pre-payment and helps ensure reliable cash flow for the business as it's often used when working with a client on a regular basis.
Credit/debit invoice
These are used to reflect a refund due to overpayment or to request more money if you've been underbilled.
Collective invoice
Collective invoices are used when a business is working on more than one project for a client. To simplify invoicing and to minimise transaction fees, you can choose to issue a single 'collective' invoice.
Recurring invoice
Recurring invoices are used if your company undertakes regular, recurring work for clients. For example, if you're a cleaning business. Here you may send invoices at regular, agreed-upon intervals such as weekly or monthly.
Frequently asked questions about invoices
What is the difference between an invoice and a bill?
The terms invoice and bill are often used interchangeably but sometimes only one is correct. Both documents contain information on how much a customer or client owes and both record data on the goods and services provided.
A key difference is that bills are usually expected to be paid immediately. They are often used by retail businesses or restaurants. Invoices on the other hand typically have longer payment terms and contain more details about the transaction. For example, bills rarely include a reference number, whereas invoices always include a reference number that companies use to record and track payment.
When should I send an invoice?
Invoices should be sent promptly, or as soon as you have provided the goods and services to the client. This shows good business practice and supports you in maintaining positive cash flow, Farge says. Hussain-Letch specifically recommends sending invoices on a Thursday. According to Square research, invoices sent on Thursdays have the highest likelihood of being paid within two days.
How do I get paid for my invoices?
Before sending an invoice, double-check you are sending it to the right person. Farge recommends copying into a centralised accounts payable department. It is then crucial to track your invoices, to ensure you are being paid on time and conversely, that you are paying invoices received on time.
“Check each invoice carefully to make sure common errors, including a missing invoice number, confusing descriptions of services, incorrect payment amounts and even no due date, don’t slip through the net,” suggests Farge. “Even the smallest mistake on an invoice can lead to payment delays, disputes and confusion, which can significantly impact both your business’ cash flow and your professional reputation.”
Remittance advice can be really helpful in tracking invoice payments. Remittance advice is a document sent from a buyer to the seller, to inform them that their invoice has been paid. It includes information about the payment, such as the date it was made and the invoice number, and supports the seller in quickly matching incoming payments to the correct customer invoice.
What are the different payment terms?
Invoice payment terms vary depending on your industry, the nature of the work you provide and the relationship between you and your client. It is common to use a 30-day payment period, says Farge, but many companies also issue shorter terms such as 14 days, as this means you should be paid faster.
What do I do if a customer doesn't pay their invoice?
Most of the time, a simple reminder is all that's required to ensure your invoice is paid. “Usually if a client doesn’t pay their invoice on time there is a good reason,” notes Michael Hall at DSL Accounting. “We usually try to contact them as soon as possible to find out if they are in financial difficulty and if so, we can offer extended payment terms or a temporary freeze.”
If that doesn’t work, then UK late payment legislation [1] allows you to charge a business if they are late paying for their goods or service, explains Farge. The rate is 8% plus the Bank of England base rate on outstanding invoices. You can also contact the Government Small Business Commissioner who can provide additional support in resolving late payment issues.
1. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
Sources:
[1] UK Government, Late commercial payments: charging interest and debt recovery, 2023
