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Do you own a business? If yes, you may have heard of a business invoice before. For those of you that are new to the concept of invoicing, you can learn everything you need to know in this guide. If you already have an invoicing system in place – great! However, it’s important to ensure that you’re protecting yourself and your business by invoicing properly which you can learn more about in this guide. Whether you’re new or accustomed to invoicing, there is always something you can do to perfect your invoicing process.
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A business invoice is an official, legal document that requests payment from a customer for products or services provided by a business. Invoices are important documents because they establish an obligation for the customer to pay the business. In other words, an invoice is written confirmation of an agreement between a business and a customer for products or services provided. Invoices are crucial documents for businesses because they track payments, determine outstanding sales, and help establish and maintain healthy relationships with customers.
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How a business operates can vary substantially, especially from industry to industry. For this reason, there are different types of invoices that have unique purposes. Let’s take a look at the various types of invoices below.
For large projects, clients may want to know an estimate of how much everything will cost. In this case, businesses will create a proposal or bid which details all of the costs and their estimated fee. It should clearly state on the invoice that the amount is an estimate, not a final bill.
If you’re doing extensive work for a client, it may make sense to invoice them in increments, as opposed to one large fee at the end of the work. An interim invoice requests payment from the customer for a portion of the total fee. At the end of the work, you should send a final invoice, discussed below.
Final invoices are used at the end of large projects and display the final fee related to your products or services. If there were interim invoices and payments throughout the project, the final invoice should show the previous payments subtracted off the total cost, leaving the remaining amount to be paid.
If a client hasn’t paid an invoice, it will be considered past due. If you have the policy to charge a late payment fee, you will need to send an updated invoice that reflects the outstanding balance plus the late payment fee. In addition, you should follow up on overdue invoices regularly as a collection process.
If you provide a product or service for a customer on a regular basis, you may want to send recurring invoices to the customer. A recurring invoice is sent on a regular basis at agreed-upon intervals and pricing. For example, if you’re a housekeeper, you may bill a customer $100 every week for your services.
Business invoices do more than notify the customer of your fee and products or services rendered. They impact other aspects of your business, let’s explore all of these aspects below.
An invoice, bill and receipt are not the same, but may occasionally be used interchangeably. To clear things up, an invoice is created by the business and is typically the term used on the business’ side, not the customer’s side. Invoices aren’t always sent directly before or after a product or service is provided.
On the other hand, a bill is a request for payment and is usually the term used by the customer. Often, a bill does not come with an invoice, for example, a bill at a restaurant or store. The expectation with a bill is that it be paid immediately for products or services provided.
Finally, a receipt is a record of payment for an invoice or bill. Receipts are also valuable records because they verify that you have paid a financial obligation and have ownership of a product or service.
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It is not uncommon for invoices to be confused with purchase orders. In simple terms, purchase orders are prepared before a transaction occurs and invoices are prepared after a transaction occurs. A purchase order is a record of what a customer ordered from a business or supplier. An invoice is created once the ordered products or services have been delivered.
Purchase orders are commonly requested by customers to support their internal processes. Usually, purchase orders are matched with invoices to ensure that was what ordered was received and billed correctly. Purchase orders can also be a part of internal approval processes.
Invoicing can be created manually through programs such as Microsoft Office or Google Docs. If you’d prefer to streamline the process and integrate your invoicing into other accounting processes, consider obtaining accounting software.
Regardless of the program or software you use, there is specific information you need to include on your invoice. Inclusion of this information should not be overlooked because it establishes clear communication to the customer, adequate records, and a formal legal document. Below is a list of all the information you need to include on your invoices.
Below is a list of other features you may want to add to your invoice to appear more professional, but they are not mandatory.
Online invoicing has several advantages that paper invoicing lacks. Consider the below benefits of online invoicing before making a decision on your delivery method.
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As we explored in this article, invoicing your customers strengthens your business practices in many ways. The most notable benefits are staying organized and tracking sales, payments, agreements, and much more. Implement an invoicing system into your business today to better your business practices.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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