An invoice is a document used by a business to request payment from a customer for goods or services. Similar to estimates, receipts, and delivery notes, an invoice serves as an important supporting document for accounting purposes, not only for corporations but also for sole proprietors.

For freelancers and other sole proprietors who provide services on a contract basis, the proper creation and issuance of invoices is key to receiving payment for work. If there are problems in the process of issuing an invoice, you might not receive payment smoothly, which could disrupt business operations.

This article explains, for businesses that accept work requests from external parties, how to make an invoice for outsourced work, including: required information, points to note, and issuing methods.

What’s in this article?

• Why invoices are needed for outsourced work
  
• Information to include and how to write an invoice for outsourced work
  
• Information to confirm with the client before creating an invoice for outsourced work
  
• Points to note when creating an invoice for outsourced work
  
• How to smoothly issue invoices for outsourced work
  
• How Stripe Invoicing can help
  

Why invoices are needed for outsourced work

Why are invoices necessary for outsourced work? In this section, we’ll explain the role of invoices.

To hedge risk

As mentioned above, an invoice is a document used to request payment from the purchaser of goods or the client to whom services were provided. Issuing invoices is not a legal requirement. However, if you conduct business in Japan, you likely have considerable experience handling documents labeled as invoices. Invoices are almost always issued in the course of business transactions, primarily as a way to avoid disputes with clients. In other words, while there is no legal obligation to issue them, they are considered indispensable documents for ensuring smooth payment from business partners.

Even without an invoice, it’s possible for a contractor to receive payment. However, failing to issue an invoice could lead to complications such as errors in the amount received or payments that never materialize. Issuing an invoice to a client for outsourced work can help prevent problems like unpaid fees before they occur.

Furthermore, in the unlikely event that the client refuses to pay for the services rendered, the invoice serves as proof of your right to collect payment. This is because, under Japanese civil law, creating an invoice allows the service provider to exercise their claim, or the right to demand payment, for a certain period (five years), even if they are unable to receive payment immediately. Thus, although there is no legal obligation to issue an invoice, the fact that its creation and delivery generate legal effect demonstrates the high utility of invoices for those doing work under contract.

For tax purposes

Income tax returns can be filed even without invoices. However, if a local tax office conducts an audit, you might be asked to submit them. In such cases, without invoices, the details of transactions that generated income cannot be verified, which can lead to the suspicion of a falsified tax return. This could potentially also lead to the assessment of additional income tax. When you consider the risks of not issuing invoices, it’s advisable to issue them for all transactions, not just for outsourced work.

Furthermore, even under the Qualified Invoice System now in effect in Japan, invoices hold a very important position. If the seller is unable to issue an invoice compliant with the Invoice System (i.e., a qualified invoice), the buyer will be unable to claim the input tax credit that would otherwise be applicable. Therefore, it’s important for businesses engaged in B2B transactions to register under the current Invoice System to become qualified invoice issuers and to ensure they have the necessary systems in place to issue qualified invoices without any problems.

It’s important to note that in order to register under the Invoice System, you must be a taxable business. Therefore, a major concern for buyers is that they will not be able to claim input tax credits when dealing with tax-exempt businesses after the Invoice System went into effect. To address this, there are now transitional measures to allow the application of input tax credits even when outsourcing work to tax-exempt businesses. Using these transitional measures can therefore help reduce the burden of consumption tax. (Regarding transitional measures for the Invoice System, check the latest information from the National Tax Agency.)

Information to include and how to write an invoice for outsourced work

There are no legal rules regarding how to write invoices, and issuers can use any format they like. As long as the required information is accurately recorded, any format, whether handwritten or electronic, is fine. However, there are certain requirements for invoices, as well as some recommended information to include on them. When creating invoices for outsourced work, be careful to avoid errors or omissions in the information you provide.

Required information

In order to perform its function as an invoice, a document must clearly and accurately contain the following:

• Invoice recipient name: Include the invoice recipient’s company name, department name, and contact person’s name. Add “Attn:” for companies or departments, and “Mr./Ms.” for individuals. Also, confirm in advance whether the addressee is the company as a whole or a specific contact person.

• Invoice issuer information: Enter the issuer’s name (or trade name) and company name. While information other than name and company name is optional, it’s considered best practice to also include the issuer’s address, phone number, and email address. Additionally, when issuing a qualified invoice, the Invoice System registration number is required.

• Transaction details: State the name, unit price, quantity, transaction date, and delivery date of the goods or services that the invoice covers.

• Transaction amount: Enter the subtotal amount, the consumption tax amount on the subtotal, and the total invoice amount including tax (subtotal plus consumption tax). Note that if withholding tax is applicable (as explained later), the final invoice amount will be the amount after deducting the withholding tax. When writing amounts, use commas as thousands separators by counting from the right and placing a comma every three digits (e.g., ¥25,000). This makes the numbers easier to read.

• Applicable tax rates and consumption tax amounts by rate: Determine the total amount of consumption tax broken down into the amounts for the standard tax rate (10%) and reduced tax rate (8%) and list these separately from the transaction amount above. When doing so, clearly state the total transaction amount (including or excluding tax) for each transaction categorized by tax rate, ensuring it’s linked to the corresponding tax rate. (Since the reduced tax rate primarily applies to food items, invoices for outsourced work typically use only the standard tax rate.)

Recommended information

The additional items recommended for inclusion on invoices include information that is necessary in most cases, such as bank transfer details. Therefore, while not mandatory, it’s advisable to clearly specify the following:

• Invoice No.: Typically composed of the customer number, date, and transaction number or a sequential number.

• Issue date: The invoice’s date of issue is not necessarily the actual date the invoice was generated, so it’s important for businesses to agree in advance on how to determine the issue date. The standard practice is to align the issue date with the client’s billing cycle closing date.

• Payment due date: State the payment date in accordance with the terms that have been agreed upon in advance. Also, if the due date falls on a weekend or holiday, be sure to confirm with your business partner in advance whether it is acceptable to move the payment date forward.

• Bank transfer details: Include the bank name, branch name, account type, account number, account holder’s name (in katakana), bank code, and branch code. If the bank account details change, be sure to notify your business partners in advance and clearly state the changes in the remarks section or other appropriate area of ​​the invoice.

• Handling of bank transfer fees: Make sure to decide in advance with your business partner who will be responsible for the bank transfer fees. If the recipient is to bear the fees, you can include a phrase like, “We kindly request that you cover the bank transfer fees,” in the remarks section of the invoice.

• Withholding tax amount (if applicable): This applies to remuneration and fees subject to withholding tax as determined by the National Tax Agency. The party paying the remuneration should clearly record the amount of income tax that has been withheld on behalf of the recipient as “withholding tax” on the invoice. Especially when dealing with corporate clients or sole proprietors subject to withholding tax obligations, confirm in advance whether they will be withholding taxes and whether the amount should be included on the invoice. Note that if your client withholds taxes, the actual amount you receive will be the invoice amount minus the withheld tax amount.

Please note that, similar to general invoices, there are no templates or legal requirements regarding the format for qualified invoices. However, to issue a qualified invoice that meets the conditions for input tax credit, it’s important to review the mandatory items specified by the National Tax Agency and gain a solid understanding of qualified invoices.

Information to confirm with the client before creating an invoice for outsourced work

The following is a checklist of items to be confirmed with the business partner before creating an invoice for outsourced work. Please use this as reference when creating an invoice.

• Invoice recipient name
  
• Invoice issue date
  
• Payment due date
  
• Which party will bear the bank transfer fee
  
• Invoice delivery method (paper invoices by mail or paperless invoices)
  
• Whether withholding tax should be included on the invoice (if applicable)
  
• Whether miscellaneous expenses (e.g., transportation costs) can be invoiced
  

Confirming this information in advance will not only help ensure smooth invoicing, but will also help you maintain good relationships with your business partners.

Points to note when creating an invoice for outsourced work

Invoices are important documents that help prevent issues such as unpaid bills and delayed payments. With this in mind, here are some key points to remember when creating invoices.

• Provide specific, detailed information: Provide as many specific details about the transaction as possible. Clearly state the delivery date, the official product or service name, the quantity, and any other necessary details. The description should be clear enough for the recipient to understand the details at a glance.

• Review the contents: If an error is discovered after sending an invoice, it could damage the trust of your business partners. Therefore, before sending an invoice, carefully review all items such as the client's name, transaction details, transaction amount, and bank transfer information to ensure there are no errors. If you discover an error in an invoice that has already been sent, contact the client immediately, sincerely apologize, and reissue the invoice.

• Focus on efficiency: To prevent the errors in documentation discussed above and reduce the workload involved in creating invoices, consider the use of an invoice template or adopting an autogeneration tool. For example, when you have to manually calculate consumption tax amounts or invoice totals, not only does it take time to do the math, but more importantly, mistakes are bound to happen. However, templates and tools equipped with automatic calculation functions can prevent calculation errors and help avoid other problems.

• Always send as a PDF: If you’re sending invoice data for outsourced work by email, always convert it to PDF format. While invoices can be created using programs like Word or Excel, sending them in their original format allows the recipient to easily modify the content. It’s highly recommended that you send invoice data in PDF format instead, because it’s difficult to delete or modify the content.

How to smoothly issue invoices for outsourced work

To issue invoices in a simple and smooth manner, we recommend using the templates and online tools mentioned above.

Online tools, in particular, are especially convenient, as they automate and centralize the entire process, from creating and sending invoices to tracking payments.

Implementing an online tool that has a comprehensive suite of invoicing functionality can lead to more efficient back-office operations. However, using such a tool involves implementation and operating costs, so it's important to carefully consider the cost-effectiveness and timing before starting to use it.

How Stripe Invoicing can help

Stripe Invoicing simplifies your accounts receivable (AR) process—from invoice creation to payment collection. Whether you’re managing one-time or recurring billing, Stripe helps businesses get paid faster and streamline operations:

• Automate accounts receivable: Easily create, customize, and send professional invoices—no coding required. Stripe automatically tracks invoice status, sends payment reminders, and processes refunds, helping you stay on top of your cash flow.

• Accelerate cash flow: Reduce days sales outstanding (DSO) and get paid faster with integrated global payments, automatic reminders, and AI-powered dunning tools that help you recover more revenue.

• Enhance the customer experience: Deliver a modern payment experience with support for 25+ languages, 135+ currencies, and 100+ payment methods. Invoices are easy to access and pay through a self-serve customer portal.

• Reduce back-office workload: Generate invoices in minutes and reduce time spent on collections through automatic reminders and a Stripe-hosted invoice payment page.

• Integrate with your existing systems: Stripe Invoicing integrates with popular accounting and enterprise resource planning (ERP) software, helping you keep systems in sync and reduce manual data entry.

Learn more about how Stripe can simplify your accounts receivable process, or get started today.