An invoice number is a unique identifier assigned to invoices that helps both the issuer and the recipient track and manage them. Each invoice number is distinct to prevent confusion and create an easy reference point for payments, queries, or audits. Invoice numbers can follow a sequential, randomised, or date-based numbering system, depending on the company’s accounting practices. These systems keep billing organised, simplify financial tracking, and maintain detailed records of every transaction.

Revenue in the global invoice processing software market was valued at $22 billion USD in 2022 and is estimated to reach $25.3 billion USD by 2033, highlighting how important invoicing and invoice processing are to businesses. Below, we’ll explain what invoice numbers are used for, how they’re created, the benefits and processes for creating an invoice numbering system, and legal and regulatory considerations.

What’s in this article?

• What is an invoice number used for?
  
• How to create an invoice number
  
• Benefits of creating an invoice numbering system
  
• How to create an effective invoice numbering system
  
• Legal and regulatory considerations for invoice numbering
  

What is an invoice number used for?

An invoice number is a unique identifier assigned to each invoice a business issues. It serves several important purposes:

• Tracking and organisation: These numbers help businesses keep track of their invoices, making it easy to find, reference, or review a specific one.

• Payment processing: When a customer makes a payment, they typically reference the invoice number to ensure the payment is applied to the correct invoice.

• Accounting and recordkeeping: Invoice numbers help maintain accurate financial records. They are used to track outstanding payments, reconcile accounts, and prepare financial statements.

• Legal documentation: Invoices serve as legal documents that detail the goods or services provided and the amount owed. The invoice number helps to identify and authenticate the invoice.

• Customer service: If a customer has a question or dispute about a charge, the invoice number lets the business quickly locate the relevant invoice to address the issue.

How to create an invoice number

Here are common methods and considerations for generating invoice numbers.

• Sequential numbering: This is the simplest method. Each invoice is assigned a number that follows the previous one in numerical order. For example, the first invoice might be 001, the second 002, and so on. Businesses can also add prefixes such as “INV” to clarify that it’s an invoice number.

• Chronological numbering: This method incorporates the date into the invoice number. For instance, an invoice issued on 15 June 2024, might be numbered 240615-001 to allow invoices to be tracked by date.

• Customer-specific numbering: Some businesses use customer codes or IDs in their invoice numbers. For example, an invoice for customer ABC might be numbered ABC-001 to help organise invoices by customer.

• Project-based numbering: For businesses that work by the project, the invoice number might include a project code or ID to help track project-related expenses.

• Hybrid methods: Many businesses combine elements of different approaches to create a unique invoice numbering system for their specific needs. For example, they might use a combination of date, customer ID, and sequential number.

• Automated numbering: Accounting and invoicing software often automatically generates unique invoice numbers so businesses do not need to create them manually.

Benefits of creating an invoice numbering system

Creating a thoughtful invoice numbering system offers several benefits to businesses, including:

• Better organization: A well-structured invoice numbering system makes it easy to locate specific invoices, track payments, and manage outstanding balances. This saves time and reduces the risk of errors.

• Improved brand image: Clear and professional invoice numbering demonstrates attention to detail and a commitment to good business practices, which reflect well on your brand.

• Simplified accounting and recordkeeping: A consistent numbering system helps maintain accurate financial records, making it easier to reconcile accounts, track income, and prepare for tax season.

• Faster customer service: When customers have questions about invoices, a precise invoice number allows for easy identification and quicker resolution.

• Fraud prevention: Unique and sequential invoice numbers can help prevent fraudulent activities by making it harder to create fake invoices or manipulate existing ones.

• Legal compliance: Many jurisdictions by law require proper invoice numbering for tax and accounting purposes. A well-designed system helps with compliance and avoids legal issues.

• Ability to scale: A well-thought-out numbering system can easily accommodate business growth, keeping invoices organised and trackable even as the number of transactions increases.

• Easier data analysis and reporting: An informative invoice number that includes details such as the date, customer ID, or project code can allow for easier analysis and reporting of sales trends and financial performance.

• Software integration: A structured numbering system can easily integrate with accounting and invoicing software, simplifying operations and reducing manual data entry.

How to create an effective invoice numbering system

Choose a format

• Sequential numbering: Number invoices consecutively (e.g., 001, 002, 003).

• Chronological numbering: Incorporate the date in the invoice number (e.g., 240618-001 for a first invoice dated 18 June 2024).

• Customer/project-specific numbering: Include customer or project codes in the invoice number (e.g., ABC-001 for customer ABC).

• Hybrid methods: Combine elements of different formats to create a unique system that fits your business.

• Prefixes: Apply prefixes such as “INV” (for invoice) or “24” (for the year 2024) to indicate that it’s an invoice and show the year it was issued.

• Suffixes: Use suffixes such as “-P” for pro forma invoice or “-C” for credit note to indicate invoice types.

Decide on a starting point

Instead of starting with 001, consider starting with a higher number such as 1,000. This can make your business appear more established and avoid confusion if you have existing invoices from other systems.

Maintain uniqueness

Each invoice number must be unique to avoid errors or confusion in payment processing and recordkeeping. Most accounting and invoicing software automatically generates unique invoice numbers, eliminating the risk of duplicates.

Keep it simple and consistent

While there are several different formats, keep your invoice numbers as simple and easy to understand as possible and use a consistent format.

Document your system

Write down your invoice numbering system and share it with relevant team members. Maintain a log of all issued invoice numbers to easily track and reference them.

Review and adapt

As your business grows or evolves, you might need to adjust your invoice numbering system. If your current system isn’t working well, feel free to modify it to better serve your needs.

Legal and regulatory considerations for invoice numbering

While there isn’t a single, universal legal requirement for numbering invoices, businesses must be aware of specific legal and regulatory considerations that can vary depending on their location and industry. If your business accepts international payments, you should be mindful of the invoicing regulations in each country, as currency, language, and tax information requirements may differ. Incorrect or missing invoice information can lead to tax penalties and legal issues. If you have any doubts or questions, seek guidance from an accountant or legal professional for compliance help.

Here are some other regulatory considerations to keep in mind when assigning invoice numbers.

• Uniqueness: Most jurisdictions legally require that each invoice number be unique. This helps with tracking and prevents confusion.

• Sequential numbering: Some countries (including all of the European Union) mandate sequential invoice numbering, meaning that the numbers must follow a consecutive order to help with auditing and recordkeeping.

• Specific industry regulations: Certain industries might have additional regulations for invoice numbering and content.