How to create an invoice: Everything businesses need to know

Invoicing
Invoicing

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Meer informatie 
  1. Inleiding
  2. What is an invoice?
  3. What are invoices used for?
  4. How to create an invoice: Required information
  5. How to create an invoice: Best practices
  6. Can Stripe create invoices?

From fledgling startups to established corporations, dealing with invoices is an integral aspect of running a business. Effective invoicing can streamline cash flow, increase efficiency, and foster stronger relationships with clients. But it’s not as simple as sending a document with a payment request: invoicing involves a careful balance of precise information delivery, professional presentation, and timing.

Crafting an invoice is an opportunity to present information in a streamlined and transparent way that minimizes the chance of confusion, potential disputes, and late payments. Businesses can use invoices as a tool to improve customer retention by providing a seamless, professional experience that leaves a positive impression on clients.

Below, we’ll break down the process of creating effective, clear, and professional invoices. This includes understanding the essential components of an invoice, using design and branding to your advantage, selecting the right invoicing software, and implementing systems to speed up payment. By optimizing your invoice creation process, you’re laying the groundwork for more efficient and reliable financial operations.

What’s in this article?

  • What is an invoice?
  • What are invoices used for?
  • How to create an invoice: Required information
  • How to create an invoice: Best practices
  • Can Stripe create invoices?

What is an invoice?

An invoice is a formal, time-stamped document that a seller issues to a buyer. In it, the seller records a business transaction that has taken place. This commercial document lists the goods or services the seller has provided and indicates the payment the buyer owes. From the seller’s perspective, an invoice provides an official record of the sale, and it forms an integral part of the business’s financial accounts by serving as evidence of income.

In addition to serving as a request for payment, an invoice plays an important role in managing and tracking business revenue. It helps businesses maintain accurate financial records, manage their cash flow, and track income for tax purposes. Invoices can also help businesses identify trends, monitor client purchasing habits, and forecast future revenue. From the buyer’s perspective, invoices are used to verify purchases, reconcile financial accounts, and support claims for tax deductions.

What are invoices used for?

Businesses use invoices for a variety of purposes. Here are some examples:

  • Requesting payment
    An invoice is, in essence, a bill. It tells a client or customer how much they owe for goods or services they’ve received.

  • Record keeping
    Invoices provide a record of sales for both the seller and the buyer, which is important for maintaining accurate financial records and managing cash flow.

  • Tracking sales
    Invoices help businesses track their sales and understand their revenue sources. Businesses can use this information to monitor their performance and make informed decisions.

  • Tax preparation
    For both the seller and the buyer, invoices are important in preparing tax returns. They serve as proof of income for the seller and proof of expenses for the buyer.

  • Legal protection
    In the event of a dispute or audit, invoices act as a legal record of the transaction, providing evidence of what was sold, how much was charged, and when the transaction occurred.

  • Accounts receivable management
    Invoices are a tool for managing accounts receivable. By tracking which invoices have been paid and which are outstanding, a business can manage its cash flow more effectively.

  • Client communication
    Invoices are also a means of communication, providing clients with detailed information about their purchase, including the price, quantity, and description of goods or services.

The main function of an invoice is to record business transactions, help manage finances, facilitate communication, and ensure legal compliance.

How to create an invoice: Required information

Creating an invoice involves gathering several key pieces of information and organizing them in a structured format. Here are the essential details that belong in an invoice:

  • Seller’s information: This includes the business name, address, contact details, and any other relevant information such as the VAT number or business identification number. For a sole proprietor, this would consist of their name and contact details.

  • Buyer’s information: This should include the client’s or customer’s name, address, and contact information. When the buyer is a business, the invoice should list its business name and address.

  • Invoice number: Each invoice should have a unique identifier or invoice number. This can be sequential or based on date, or it can follow any other system that suits the business.

  • Date: This should be the date the invoice is issued.

  • Products or services: This should outline a detailed description of the products or services provided. For goods, this could include the type, quantity, cost per unit, and line total. For services, it might include the service type, the rate (hourly, daily, etc.), the number of hours or days, and the line total.

  • Costs: Clearly list the costs of each item or service, including the unit cost and the total cost for that line item.

  • Subtotal: The subtotal is the total cost before any additional charges, discounts, or taxes are applied.

  • Discounts (if any): If any discounts have been applied to the transaction, make sure to list them.

  • Taxes: Calculate and list any applicable taxes. Make sure to indicate the type of tax and the rate.

  • Shipping or additional charges (if any): If there are any additional charges, such as shipping or handling fees, make sure to add them.

  • Total amount: This is the final amount due, including all charges, taxes, and discounts.

  • Payment terms: The invoice should clearly state the terms of payment, such as the due date and acceptable methods of payment.

  • Notes (optional): This includes any additional notes or comments from the seller.

Depending on your geographic location and industry, there may be specific legal requirements for what you need to include on an invoice. In certain industries, businesses might need to include more specialized information, such as an hourly breakdown for billable work in a service business, or the weight and dimensions of products in a goods-based business. The type of business and the nature of the transaction can significantly influence when and how an invoice is created and delivered.

Here’s a breakdown of how different business situations can affect invoices:

  • Service-based businesses
    For businesses offering services, such as consulting or freelancing, it’s common to invoice upon completion of the work—sometimes referred to as “invoicing in arrears.” For example, a graphic designer might issue an invoice after finalizing a logo design. In certain cases, such as for ongoing services, it might be appropriate to send periodic invoices (monthly, quarterly, etc.), stating the services provided during that period.

  • Product-based businesses
    Businesses that sell physical goods usually issue an invoice at the point of sale or when an order is confirmed. For instance, a clothing store would send an invoice upon purchase, whereas an ecommerce business would typically send an invoice when the customer’s order is processed.

  • Progress billing
    For larger projects that span extended periods, such as construction or customized software development, businesses often use progress billing. This means they issue invoices at various project milestones or stages of completion. Progress billing helps cash flow, and it also keeps the client informed about the progress and associated costs.

  • Recurring billing
    For subscription-based services, such as gym memberships or software-as-a-service (SaaS) subscriptions, businesses typically send invoices on a regular cycle (monthly, quarterly, annually, etc.). This type of invoicing reflects the recurring nature of the service.

  • Up-front payment
    In certain situations, especially when dealing with bespoke products or when the customer’s credit is uncertain, an up-front payment may be necessary. Here, a business would issue an invoice detailing the advance payment required before delivering the goods or performing the services.

  • Retainer model
    Businesses such as law firms or PR agencies often operate on a retainer model, in which the client pays a regular, predetermined fee. In this case, the business would issue an invoice at a prearranged cadence showing how that fee has been allocated (such as hours worked), along with any additional costs beyond the retainer.

In all of the above cases, it’s important for businesses to communicate clearly about payment expectations, ensure prompt invoicing, and follow up for payment when appropriate.

How to create an invoice: Best practices

Creating and managing invoices is a fundamental component of revenue generation and cash flow management. Employing strategic best practices here can result in expedited payments, reduced payment-related queries, and stronger client relationships. Here are best practices for businesses:

  • Use a professional layout
    Your invoice should look professional and be easy for your client to read, reflecting the high quality of your brand and service. Consistency in layout lends professionalism while also helping your clients locate key information quickly, which in turn facilitates faster payment. Using an invoice template or specialized software can simplify this process by ensuring every bill you send maintains your professional standard.

  • Include all necessary information
    Ensure that your invoice contains every important detail, including your business name and address, the description of goods or services, and the total amount due. Make sure to also incorporate your tax ID if it’s required by law.

  • Itemize your services or products
    Take time to detail each service or product provided, including its associated cost. An itemized invoice eliminates any ambiguity about what you’re billing your client for, reinforcing trust and making disputes less likely.

  • Clarify payment terms
    Your payment terms should be clear to recipients, including specifics such as the due date and the different payment methods you accept. If you charge penalties for late payments, make sure to state this up front.

  • Use unique invoice numbers
    Ensure that each invoice has its own invoice number. This numbering system simplifies invoice management and can be important in the event of disputes or audits, enabling you to easily track and retrieve the right document.

  • Deliver promptly
    Send your invoices promptly. The earlier your client receives the invoice, the higher the likelihood they’ll settle the payment early. This can have a positive impact on your cash flow and financial planning.

  • Follow up
    Be proactive in following up on unpaid invoices. Politely reminding your clients when a payment is due or overdue keeps the transaction on their radar and signals your professionalism. This step (and others) can be automated with a tech-powered solution such as Stripe Invoicing, which we’ll discuss in more detail below.

  • Keep records
    Make it a practice to maintain a meticulous record of all invoices issued and payments received. These records serve as an excellent reference for tracking payments and following up on overdue invoices, and they are indispensable for financial management, audits, and tax obligations. Working with a comprehensive payment and billing provider such as Stripe can reduce the complexity and workflow associated with maintaining financial records.

  • Use digital tools
    Make technology work for you by using invoicing software or digital platforms. These solutions—including those offered by Stripe—can automate several aspects of the invoicing process, such as creating recurring invoices, sending follow-up reminders, and maintaining digital records. This can save you valuable time and reduce the chance for human error.

  • Personalize your invoices
    When appropriate, consider adding a personalized note or a simple thank you to your client for their business. This small personal touch can help build a strong, positive business relationship that lasts beyond the transaction.

  • Make it easy to pay
    Simplify the payment process to facilitate timely payments. Offering multiple payment methods and enabling online payments can make it more convenient for clients to settle their invoices—which helps you receive payments faster.

Can Stripe create invoices?

Yes, Stripe can create and manage invoices. Stripe enables businesses to bill customers with one-time or recurring invoices, and customers can pay directly through a link included in the invoice via a solution called Stripe Invoicing.

Stripe Invoicing includes customizable options, automatic reconciliation of payments, and flexible billing frequencies for recurring payments. It also provides detailed reporting and tracking features, making it easier for businesses to manage their finances.

Here’s more about what Invoicing can offer businesses:

  • Efficiency and speed
    Stripe Invoicing is designed for rapid invoice creation and payment. Stripe’s advanced features and APIs enable the automation of accounts receivable, which streamlines the entire process from invoice creation to payment reconciliation. Stripe’s tools for automatic tax calculation further facilitate accuracy and compliance across the scope of your business’s financial operations.

  • Flexibility and customization
    Stripe enables a high level of customization for its invoices. From adding line items, discounts, and tax rates to customizing invoice appearance to match your brand, this flexibility caters to many business requirements and use cases. Stripe also supports both one-time and recurring payments, which provides businesses with more flexibility to align invoicing with their business model.

  • Global reach and scalability
    With support for several global payment methods in addition to multiple languages and currencies, Invoicing can scale with your business as it grows and expands into new markets. It’s designed to meet your needs, regardless of business size or complexity.

  • Improved payment rates
    The majority of Stripe’s invoices are paid within 24 hours, due in large part to customers’ ability to pay through a variety of methods—as well as the invoice reminders feature, which can help reduce the occurrence of unpaid invoices.

  • Integration and compatibility
    Stripe Invoicing integrates easily with most businesses’ existing workflows. It provides real-time synchronization with popular accounting systems and enterprise resource planning (ERP) solutions, and it allows for data import via Stripe’s Reports API. These capabilities can make managing financial records significantly easier and ensure that your invoicing system works seamlessly with your broader financial environment.

  • Financial control and oversight
    Stripe’s Dashboard provides clear, detailed reports that help businesses monitor outstanding invoices, track payments, and prioritize collections efforts. This level of oversight contributes to a clearer understanding of a company’s financial health and can be beneficial for financial management.

These capabilities allow businesses to take a more strategic approach to invoice management, making the process less burdensome while enhancing financial operations.

To learn more about Stripe Invoicing, speak with an expert to get started.

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