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.
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.
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.
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:
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.
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.
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:
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.
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.
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.
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.
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).
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.
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:
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.
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.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?