Invoices aren't exactly the most glamorous part of running a business. However, they're crucial to professional transactions, so —unfortunately— you're going to have to get used to them.
If you're a freelancer or you've recently decided to set up a small business, you'll need to nail down the invoicing process at some point. And, trust us, it's better sooner, rather than later! If you're new to invoicing, you might be wondering, "What is an invoice?" or feel like you're going around in circles trying to understand how to make an invoice. That's OK, you're not the only one.
We know that creating an invoice from scratch for the first time can be challenging. So, we're here to lend a helping hand. In this article, we'll guide you through the process of creating an invoice. So grab a cup of coffee, and let's dive into the wonderful world of invoicing! (Too far?)
What is an Invoice?
First of all, let's go back to basics. Before we dive into how to make an invoice, it's important to understand what is an invoice and what is it used for.
What is the definition of an invoice?
By definition, an invoice (sometimes referred to as a sales invoice) is a document that lists goods services provided along with an amount due. It contains precise details (we'll get to those later) and is specifically labeled as an invoice. An invoice effectively tells the client how much they need to pay you, and sets the terms for that payment.
What are invoices used for?
For small businesses, invoices are an integral part of the accounting system. Without them, you won't get paid. At the end of the day, getting paid is what covers your expenses, provides your salary, and keeps your business running nice and smoothly.
In order to pay you, your clients need to have a record of the work you did, how much they need to pay you, and when they need to pay you.
Invoices are legal documents that identify the payment amount due and the payment terms. The payment terms refer to the due date (eg. within 30 days) and any potential late payment penalties. They can be used to request and record sales transactions for various purposes, including:
- To request payment for purchase orders of goods or services
- To record the sale of goods or services and manage finances
- To record transactions for tax purposes (eg. filling out a tax return)
- Business forecasting using historical data
Invoices are legally binding documents, so they can be used to take more formal actions - particularly in the case of missing or overdue payments. Although, we're sure it won't come to that.
When you send an invoice, it creates an "accounts receivable". This is integral to the bookkeeping and accounting part of your business. By sending an invoice, you establish a paper-trail record of the work you've completed and the payments you've received.
When the time comes to submit your tax self-assessment, you'll need to provide these as evidence of your business transactions. Proper invoicing will help you to keep track of your work and finances. Moreover, it's crucial for freelancers who need to file self-employment taxes.
The Current State of Invoicing
What does invoicing look like in 2023?
First came envelopes. Invoices were written or printed manually, sealed in an envelope, and popped into the mailbox. Next came the fax machine revolution. Invoices were sent and received using those ostentatious machines that stood in the corner of every office. Nobody really understood how they worked. They still don't. Then along came E-mail and simplified our lives. Invoices were —and still are— sent as file attachments (PDF, Microsoft Word documents, etc.).
In today's age of digital transformation, manual methods of invoicing are slowly losing favor among forward-thinking freelancers and business leaders. They're being replaced with automated online cloud-based invoicing software that enables freelancers and small-medium businesses to seamlessly send, track, and manage your invoicing needs - all in one place.
All-in-one invoicing and accounting software like Bonsai take the stress out of bookkeeping by integrating and automating business processes in an easy-to-use platform. Bonsai stores all your important business data in one centralized location. You can use the invoice generator to create an invoice that's ready to send and keep track of all your proposals, billable expenses, accounting, and tax records effortlessly.
How to Make an Invoice
Whether you're a freelance writer, a web designer, or something else - once you've completed the job, you'll need to know how to bill a client.
There are many ways to make an invoice. You can create an invoice from scratch using Google Docs, Microsoft Word, or even Microsoft Excel which feature several invoice templates for freelance businesses. What matters the most is that you create an invoice with the right information. The smallest error could lead to your client not paying you on time —or worse— at all.
According to Amalto, 39% of invoices sent in the US are paid late and 61% of those late payments are due to incorrect invoices. Also, it turns out that female freelancers are more likely to be paid late than males! So what information should you include to make sure you get paid correctly and in a timely manner?
Let's find out.
What information should an invoice include?
Whether you're creating a standard, commercial, or VAT invoice - invoice details should include the following:
- Unique invoice number: See below for more information about how to create an invoice number.
- Your business name and logo: If you're a self-employed freelancer, your business name might simply be your normal name. Include your company logo somewhere on the invoice (if you have a logo, of course)
- Invoice date: Date the invoice. By adding the date, you'll make it easier to track any late payments.
- Your contact information: Include your physical business address, business phone number, and email address, as well as any other relevant contact information.
- The client's contact information: Add the client name, business address, phone number, and email address.
- An itemized list of the goods or services provided: Include line-by-line items and details of what you've done and the amount of time spent on each task. Also include the date completed, your rate per hour, and any tax or additional fees.
- The total amount owed: Calculate the total amount owed, including sales tax and any additional fees.
- Payment terms: Payment due date and be sure to include any late fees that will apply.
Let's talk about invoice numbers
An invoice number, or invoice ID, is a number assigned to each invoice you generate. An invoice number is a crucial part of any invoice. It enables you to keep track of invoices sent, search for specific documents, and identify transactions with clients. From a client perspective, invoice numbers help them to keep track of upcoming payments due and payments made.
There are different ways to systemize your invoice numbers. You can assign an invoice number sequentially, chronologically, or by client or project ID. Numbering invoices sequentially is the simplest method, you assign a number to your first invoice (#001 is a good place to start) and assign the next invoice the following number in the sequence (#002).
Whichever invoice numbering system you decide on, it's important that it's consistent.
A simpler alternative is to use invoicing software like Bonsai. Bonsai automates the process of creating invoices so you don't have to worry about implementing and managing a numbering system - we'll do it for you!
Use an invoice template to create an invoice.
Many freelancers and small business owners use an invoice generator to make, store, and send their invoices. A professional invoicing product like Bonsai offers ready-to-use invoice templates to simplify the whole process.
But how do invoice templates work?
All you need to do is select an invoice template, add any necessary information (contact details, payment terms, etc), download the invoice file as a PDF to send in an email, or use a link that enables the client or customer to download it directly.
When you complete an invoice template, you can save information like your company name and logo, email address, and phone number so that it appears pre-loaded the next time you use the template.
Bonsai offers an invoice template to suit every profession. Whether you're looking for a standard invoice template or a more specific one geared towards a certain profession, we've got all the bases covered. With Bonsai's invoice generator, you can automatically create your next invoice, remind your customer that a payment is overdue, and accrue late fees without having to
Why use an invoice generator?
Making an invoice using a free invoice generator has several advantages. The template will already include all your essential information every time you make an invoice, saving you time, and establishing consistency in your invoicing process. Moreover, Bonsai's invoice generator includes branding and integrated payments to streamline your business operations.
When you use a professional invoice generator with free templates, you can avoid making any errors that might impede the payment process. No more checking and double-checking to make sure all of your contact information was entered correctly. With an invoice generator like Bonsai, you can send your client correct and consistent invoices that ensure you always get paid on time.
How To Send An Invoice
When it comes to invoicing a client or customer, don't wait too long. Once you've completed the work, it's best to create and send a professional invoice and send it as soon as possible. Attach your invoice as an attachment, rather than in the body of the email.
It's also a good idea to add the invoice number in the subject line so the customer knows exactly what to do. Once the payment is received, don't forget to flick the client an invoice thank you email for good measure.
If you're serious about nailing the invoicing process, consider implementing all-in-one freelancing software into your business tech stack.
Bonsai uses smart automation to manage all of your invoicing needs. You can create a professional invoice and customize it to your needs, as well as automate late payment reminders. Moreover, Bonsai's fully-integrated product suite features everything you need to effectively run your freelance business. From proposals to contracts to accounting and taxes - Bonsai makes business management simple.
Did we mention that Bonsai offers a free trial for its services? Well, now you know!
