You want to make money, so you need to make sales. And you really want to get paid, so you send out invoices. Then, you wait and wait for payments.
After years in business, we now have an accounts receivable record that amazes bankers (true!) … but back when we invoiced our first customer, we were ignorant. Basically, we didn’t know the differences between an invoice and a statement and a packing slip and a bill of lading … and a box of Kleenex!
For our first invoice, we were so ignorant that we didn’t know what should be on the document. Since there was no Internet to search for samples, we went to an office supply store and bought a little packet of generic invoice forms. Then we filled in the blanks by hand — which was pretty lame since we were selling accounting software solutions!
So to shorten the learning curve for you, here are the basic facts about invoices.
Remember your goal
An invoice is a document designed for the customer — not for you. The invoice is a bill sent to the customer to help them pay you the proper amount of money on time.
Invoicing is billing your customers for money due on a sale.
Always remember your goal. You want to get your money from the customer!
Keep it simple
Avoid adding extra information. If it doesn’t help the customer pay you for what they bought, don’t put it on the invoice.
Plain is good. Avoid anything that could make reproduced copies hard to read, like fancy, faded background images or shading.
Include these items on your invoice
- Heading: “INVOICE” should be the heading. The customer should clearly understand that the document they are holding is a bill that requires payment.
- Your business name: Customers need to know who the invoice is from. Most expect your business name to appear in the upper left-hand corner.
- Your customer’s name and address: This information usually appears directly under your company’s name and address to show through a window envelope. Be sure to include a contact name, whenever possible.
- Invoice number, date, and due date: The customer will use this information in their bill paying system. The due date should stand out. Most expect to find this information in the upper right-hand corner.
- Identifying information: This information (e.g., purchase order (PO) number, customer ID) helps the customer remember what they bought. Only add what you expect to use regularly. This will go in the upper right-hand corner, also.
- Brief purchase description: Include quantity, the price per item, and extended amount. Be sure to include at the bottom of this center section any sales tax, shipping and handling fees, etc. If you provided a service, detail the service you provided in the invoice.
- Amount due: Make sure this is very clear. Too many invoices offer optional amounts (e.g., past due balance, discounted payment, partial payment, etc.) without making the current amount due distinct and obvious. The amount due is usually expected to be in the lower right-hand corner.
- Methods of payment: Payment options should be clearly stated to make your invoice easy to pay.
- For checks — clearly show the name to make the check payable to and the mailing address. It’s always nice if this information appears near the amount due.
- For credit or debit cards — you will need the customer’s information (e.g., card type, cardholder’s name, account number, expiration date, and security code) and a signature line.
- For ACH banking — Automated Clearing House (ACH) method of payment that requires the customer’s bank routing number, bank account number, and type of account.
- Returnable stub: If the customer pays with a card or ACH banking, you will need to provide the customer with a returnable stub. The stub is usually a detachable portion of the invoice form that asks for the required information as identified above and needs to be returned to you. (You may find the returnable stub is useful for your own accounting purposes. Regardless of the payment method, the stub can help track payments received.)
- Reminder for invoice number: Send this when no return stub is provided and payment is by check. Add a note to the invoice that asks the customer to write the invoice number on their check.
- Terms: Terms might include discounts given for quick payment or finance charges applied for late payments. If you offer payment amount options like these, you may find it necessary to add this information to your invoice. However, keep the font size small for these amounts so they are not confused with the current amount due.
- Contact information: Include this information in case the customer has any billing questions. If you make it hard for customers to get their questions answered, you won’t get paid!
Answers to your questions
How often will I prepare and deliver invoices?
A variety of factors can impact your answer. Essentially, look for process efficiencies (i.e., a specific period of time when you or your biller can be focused in billing mode) without slowing the cash flow. That may be daily, weekly, or monthly.
What should my terms be?
- Use terms that make sense and get you the money quickly. Interestingly, a study showed that 21 days is the most effective terms in collections.
- Always give a hard due date. Due on demand is not good. Some people interpret this to mean, “Pay this whenever you get around to it.”
- Recognize that it takes time 1.) for the invoice to get to the customer, 2.) for the customer to process the invoice for payment, and 3.) for the payment to reach you.
- Politeness counts whatever your terms are.
Will I enclose supporting documentation?
Include documentation only when necessary to assist the customer in their payment process. This may mean referencing a PO number on the invoice. Otherwise, keep it simple. Remember, your goal is to get paid!
Will I give discounts or charge late fees/finance charges?
Both of these are effective tools in the collection process. Do the math on discounts and determine if getting the cash in the door a week or a month earlier is worth the funds you would be giving up. Finance charges are sometimes ignored by customers. Therefore, finance charges should be a large hammer, and one that is not easily ignored. If nothing else, it may help pay for the services of a collection agency down the road.
Do I need a system for invoicing?
Be sure to develop a system whereby every sale is billed. Maybe it’s a shipping form that comes back from a customer. Maybe the delivery person is the invoice creator. You don’t want to miss billing for a sale!
What about advance billing?
If you offer recurring services or products, consider billing in advance for those sales.
Do I need to prepare monthly statements?
Don’t bother sending out monthly statements in addition to invoices. Most people pay from invoices, not monthly statements, and sometimes the monthly statements only confuse the issue. Save your time and supplies for other, more effective, collection procedures.
Why would I use a computer for invoice production?
Handwritten invoices lead to errors. Automation can eliminate the math errors, and limit some data entry errors, as well. You can use our accounting software to make unlimited invoices.
Should I consider electronic delivery of my bills?
- Email is quicker and cheaper than postal mail. However, make sure the customer knows to adjust their spam filter to allow your emails through.
- Realize that if your customer contact’s email address changes, you may not know that the customer has stopped receiving your invoices.
- Be sure to have an alternative form of contact.
What if I want to use postal mail?
Make sure you have an accurate customer mailing address. Customers never pay bills that they never receive!
Start creating invoices on our basic accounting software today. Why not see for yourself how easy online software can be with a free trial?