What is an Invoice? A guide to invoicing in 2021

9

Min Read

Annette Young

What exactly is an invoice? Put simply, an invoice is a document that displays purchase orders for goods or services provided to a client and sets out a payment obligation. Essentially, an invoice is your professional and polite way of saying "pay up"!

If you're new to freelancing or you've just started a small business, invoicing can be pretty confusing.

You've put in all the hard work and now you want to get paid, but how? In this article, we'll answer the question "What is an invoice?" and provide you with the know-how you need to create and send an invoice to clients.

Let's jump right in.

What is an Invoice: A Definition

According to the Cambridge English Dictionary, an invoice is:

"A document that lists things provided or work done, gives their cost, and asks for payment."

That sums it up pretty well! Invoices specify what the buyer must pay once the seller has provided the service according to specific payment terms. Invoices are an integral part of doing business, for buyers and sellers.

A sales invoice refers to an invoice for the sale of goods or services from a seller's point of view. On the other hand, a purchase invoice indicates an invoice for the cost of products or services rendered. Whichever kind of invoice, they detail the services rendered or provided, the total amount due, and the terms of payment.

In the past invoices were sent in letter-form via the post or fax machine. As we moved further into the digital world, they were sent as file attachments in emails. This is still common today, however more and more professionals are turning to powerful cloud-based invoicing software like Bonsai to streamline the process of creating, sending, and tracking invoices.

What is the difference between an invoice and a bill?

Often, the word invoice is used interchangeably with "bill". But they don't mean quite the same thing.

Invoices and bills are documents that technically convey the same information. They both depict the amount owed for the sale of products or services. However, an invoice is typically sent by freelancers or businesses seeking to collect payment from clients. Instead, a customer uses bills to keep track of payments owed to suppliers. Essentially, they're the same thing but used by different parties involved in the business transaction. If you're a freelancer, you might be interested in reading about how to bill a client.

What is an Invoice Used For?

Invoices are an integral part of business accounting. Without them, freelancers, small business owners, and other service providers simply wouldn't get paid; which is—ultimately—what allows them to keep doing what they do.

Invoices recount a purchase order, and provide essential documentation for business accounting and filing self-employment taxes. Moreover, clients and customers also need to keep a record of what they've paid for.

They're used by professionals to request and record sales transactions for a number of reasons, including:

  • To request purchase order payments
  • To record sales transactions for accounting and finance purposes
  • To keep track of inventory (when selling products)
  • To record business revenue and transactions for tax filings

Invoices are essentially the follow up of your work contract. Sending an invoice creates an "accounts receivable", which is crucial for business accounting. It also creates a paper-trail record of the work you've done or any product sold, as well as the payments you've received and are yet to receive from clients. One of the most important things about invoices is that they hold clients and customers accountable.

Why is invoicing important?

It's the difference between you getting paid and... not getting paid! We're guessing you'd prefer the former option, right?

Invoices are the main legal documents that serve to bill for the service(s) or product(s) you provide to a client. An invoice is a legally binding document, so it pays to know how to invoice clients professionally.

Fortunately, there are a number of tools to guide you through the process. Online invoice generator tools like Bonsai can help you to create an invoice with professional-looking and fully customizable invoice templates for any kind of freelancer.

Invoices are also used in case a payment is incorrect or overdue. If you need to follow the missed payment up with more formal interactions, your invoice is the proof you'll need. Following up late payments is always a bit awkward, which is why we wrote this guide about how to chase up clients with payment reminder emails.

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What's Included on an Invoice?

Now that you know what an invoice is, you might be wondering what information professional invoices require. First things first: date the invoice. Once you've done that, any business invoice should include the following:

1. Invoice number.

All invoices need an invoice number (also referred to as an invoice ID). This is a unique number that's assigned to each invoice you create and send. An invoice number enables you to track and search for invoices that you've sent and identify specific transactions with clients. They provide structure and organization to your invoicing. For clients, an invoice number is used to keep track of upcoming due dates and past payments.

Invoice numbers can be assigned sequentially, chronologically, or by client or project ID. Let's take a closer look at the different ways you can number an invoice.

  • Sequentially: Simply start with a number (eg. #001) and continue to number your future invoices with the following numbers (#002, #003, etc)
  • Chronologically: This method sorts invoices by the date they're created, for example, 2021-01-22-001.
  • Customer ID: Assign your clients or customers a unique customer ID, and number your invoices accordingly.
  • Project ID: Similar to the way you'd assign invoice numbers by customer ID, you assign specific projects ID numbers and then add the unique invoice number.

2. Your business contact information.

Include your business name, contact information, and company logo (if you have one) so the client knows exactly who they need to pay. If you're a self-employed freelance professional, your business name might just be your name. Include your physical address, phone number, and email address.

3. The client's contact information.

Make sure your invoice includes your client's contact details. The client's name, business address, and any other relevant info should be added. With invoicing software like Bonsai, you can save this information in an invoice template. This way, if you work repeatedly with a certain client, you won't have to waste time manually entering the information into your document each time.

4. An itemized list of any goods and services provided.

An itemized invoice list allows you to clearly communicate the work you've done. Organizing the list per unit completed provides the client with straightforward and easy to understand documents that mitigate confusion and the possibility of mistakes being made when it comes to making a payment.

Clearly list the goods or services you provided the client with line by line. Detail what you did, the amount of time you spent on each task, and the date you completed it. Be sure to define your rate per hour and any other additional taxes or fees incurred.

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5. Payment terms

Invoice payment terms are an essential element of bills sent from small businesses to clients. It outlines the timeframe in which they expect payment for their services and the different payment methods accepted. Invoice payment terms provide businesses with better control over their cash flow and expenses.

The payment terms include the total amount due to the seller, payment method, due date (eg. within 30 days), buyer late payment fees, early payment discounts, and any other relevant payment-related information.

There are a range of payment terms sellers can include on their invoices to outline payment terms, for example, Net 30 (payment due in 30 days), upon receipt, or payment in advance (PIA).

How to Send An Invoice

Sure, you can do it the old-fashioned way and send your invoices by email. But, we're sure you'll eventually come to realize that this isn't a time-efficient way to manage your invoicing. Instead, online invoice software makes creating and sending invoices much simpler.

Tools like Bonsai streamline the process of sending and tracking invoices with smart automation. Send invoices, reminders, and even add late fees directly within the app.

Once you've completed your invoice, aim to send it as soon as possible. After all, the sooner you send it—the sooner you can get paid. Ensure your invoice features all of the required information including payment terms, client details, and the date sent.

Benefits of Bonsai's Invoicing Software

By integrating freelance business processes from creating proposals to managing your accounts, Bonsai is an invaluable tool for freelancers looking to streamline their back-office operations in a unified platform.

Using invoicing software like Bonsai to create professional invoices has many advantages. Bonsai's free invoice generator is a life-saver for freelance professionals who don't know where to start. Users can choose from numerous invoice templates geared towards all various services. Using invoice templates has several benefits, including:

  • You can save essential information to use again later when invoicing the same client or buyer.
  • Saves time as you won't have to create the invoice from scratch.
  • Establishes invoicing consistency and reduces errors that could stop you from being paid.
  • Keeps track of whether invoices have been viewed, open, or paid with a handy dashboard.

Bonsai's easy to use invoicing tool takes the hassle out of invoicing. Create invoices in minutes, highlight payment terms, and ensure you're always paid on time.

Did you know that there's more to Bonsai that invoicing?

Bonsai provides freelancers with everything they need to successfully run their business. Bonsai's freelance product suite allows users to create proposals, contracts, and freelance invoices templates and integrates with essential tools to track and manage your pipeline, projects, and payments.

Whether you're a freelance writer, photographer, software developer, or another business professional—Bonsai's smart automation takes the stress out of business management. So you can spend less time on tedious business management tasks, and focus on doing what you do best.

Get Started With Bonsai Today

Before you can start creating and sending invoices, you'll need to secure your clients. That means creating a professional, legally binding contract.

Bonsai offers robust contact creation functionality with countless contract templates for freelancers. Once you've described the scope of your work, added payment details, and signed the contract; you can integrate your invoices to receive faster payments and better business security.

Getting started with Bonsai is simple. Just sign up with your name and email address to access and create professional-looking contracts that'll help you land and keep clients.

Annette Young
Annette Young is an experienced freelance writer and author of 16 books in her own name. The editor of Creative1Publishing and the owner of a small business, Annette is aware of the importance of marketing and best business practice. Experienced in marketing and a qualified trainer, Annette has many years of experience creating workshops and training programs so to help employees take the vital first steps towards leadership.

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