If you’re familiar with the basics of small business accounting, then you know that signing a new client doesn’t mean you’ll get their cash right away. If anything, you might have to wait several weeks or months before the money in your company’s accounts receivable hits your business’s cash account. And if you don’t send invoices for your work, you might never get that money.
Neglecting to send invoices can delay your clients’ payments since, often, clients need to receive invoices to trigger their payment processes. Since your clients likely record invoices in accounts payable upon receipt and pay according to their in-house pay schedule, your clients may miss or ignore payments without invoices to trigger their pay processes. Fortunately, sending invoices is easy. Below, we’ll walk you through how to create an invoice.
[Related Article: Accounts Payable vs. Accounts Receivable and How They Differ]
An invoice is an itemized document listing and detailing the prices of all products and services a client has purchased from your company during a given period. Once your client receives your invoice, they must pay the invoice within the period specified in your terms and conditions.
Without invoices, small businesses like yours would likely have a far tougher time pursuing client payments and receiving them on time. Invoices also double as records of your work for a client, and this record can be useful for accounting purposes, renegotiating terms with a client or even if you’re facing an IRS audit. Your clients can likewise use invoices for recordkeeping and accounting.
An invoice is an itemized document containing all work you performed for a client during a period alongside the prices you’re charging for each line item.
You should include the following in your invoices:
An invoice contains the business basics of your completed work for a client alongside payment terms.
It’s one thing to know what you should include in your invoice, but it’s another to present this information in a manner that your clients can easily understand and act upon. You can make sure your invoice is fully comprehensible by taking the following steps:
Your invoice should begin with a header that includes the invoice date alongside contact information for both your company and your client. Often, your business information will be on the left-hand side and that of your client will be on the right-hand side, but sometimes, your information can go atop your client’s.
If the invoice you’re sending is your first for a client, you can include “Invoice #0001” in your header (the extra zeros in the number prevent spacing changes if you reach thousands of invoices). Alternatively, you can set an identifier related to the service period, such as “Invoice #2021Q1” or “Invoice #FEB2021.” Even if your invoice identifier specifies the period that your invoice covers, you should include an exact invoice date alongside the identifier as well.
The core of your invoice is your itemized table of services and prices. Here, you’ll list each item and its quantity, rate per unit (which can be a price per item or an hourly rate) and total cost. At the bottom right of the table, you’ll add each line item’s cost and record the sum as your invoice’s total value. You should either make sure this number is bolded or list it elsewhere as the total due in a large, obvious font. In some cases, you’ll need to charge taxes as well.
In your itemized table, you can also include the date or timeframe in which each line item was provided and detail what the indicated service encompasses. Doing so can help make your work and pricing more transparent to your client and possibly encourage faster payment. You can also facilitate payment by including more than one itemized table. For example, if you are providing services to your client both within their office and off-site, you can create one itemized table for each location.
Often, invoices are self-explanatory lists of services, quantities and prices, but sometimes, they can’t tell the whole picture. For example, it might not be immediately evident that you’re applying a discount to one of your line items. To clarify this discount, add an explanatory footnote at the bottom of your invoice. This way, your client knows that future invoices may display higher rates for the same work. If your invoice doesn’t require clarifying footnotes, you can still add a thank-you note – a little gratitude can go a long way.
To create an invoice, start with a header, decide on a unique invoice identifier, fill out your itemized table and leave footnotes as needed.
Now that you know how invoices work, it may be helpful to see one in action. That’s why we’ve provided an example below:
February 26, 2020 INVOICE #FEB2021
John Doe Bill To: Excellent Client, LLC
1 Times Square 1 Hollywood Boulevard
New York, NY 10011 Los Angeles, CA 90045
|Project||Quantity||Rate per unit||Project rate|
|TOTAL DUE BY 3/31/2021||$17,250.00|
* As previously discussed, we will no longer be offering service 3 starting next month.
^ For service 6, a discount of $50 per unit was applied. Thank you as always for choosing MyCompany!
Now that you know how to create an invoice and have seen a realistic example of one, you can start making your own using a template or generator. Below are five options:
Once you’ve chosen your template, just follow the above steps to create invoices that clients won’t just understand, but will also act upon.