Invoicing is an important part of business operations—and one that is often overlooked as a tedious back-office chore. The right invoicing system can contribute to timely payments while fostering trust between businesses and customers.

Below, we’ll cover the steps of the invoicing process and explain how automated billing systems can contribute to a smooth payment experience.

What’s in this article?

• What is an invoice?
  
• How to send an invoice in 7 simple steps
  
• What’s included in an invoice?
  
• When to send an invoice
  
• Invoicing best practices
  
• How Stripe Invoicing can help
  

What is an invoice?

An invoice is a commercial document that a seller issues to a buyer, outlining the products or services provided and indicating the amount of money the buyer owes the seller.

Invoices play a key role in managing and tracking financial transactions. They are an important accounting tool for businesses, helping monitor sales, manage inventory, and track income. For customers, invoices provide a detailed record of purchases, which is useful for budgeting and record-keeping. Invoices can also help resolve disputes over payments, because they provide a legal record of the agreed-upon transaction between seller and buyer.

Invoices are typically transmitted through digital channels such as email, electronic invoicing systems, or customer portals, although some businesses still use traditional mail for paper-based invoicing. The receiving party reviews the invoice to ensure the information is accurate—including services rendered, quantities delivered, and pricing terms—and approves it for payment according to the agreed-upon terms and payment schedule.

How to send an invoice in 7 simple steps

For businesses, sending invoices is an important part of managing finances and maintaining a steady cash flow. Here are the steps that make up the invoicing process:

1. Understand your client’s invoicing process: Before creating an invoice, familiarize yourself with your client’s invoicing process. Some clients may require specific information, such as a purchase order number, or prefer a specific invoice format. Understanding these requirements up front can help ensure your invoice is processed quickly and correctly.

2. Prepare and review the invoice: Based on your understanding of your client’s needs and the nature of your business transaction, prepare an invoice using the necessary template or software. Include the key components such as seller and buyer information, invoice number, date, description of goods or services, costs, and payment terms. Review the invoice to make sure all information is accurate and complete.

3. Send the invoice: Once you have prepared and reviewed the invoice, send it to the client by email or via a dedicated invoicing or accounting software system, such as Stripe Invoicing. To avoid unnecessary delays, make sure you send the invoice to the correct person or department within the company.

4. Follow up: After sending the invoice, track it. If payment doesn’t arrive by the due date, follow up with the client. This could consist of a friendly reminder email or phone call to check if there are any issues with the invoice. Keep a record of all communications.

5. Receive payment: Once the client makes the payment, record it in your accounting system. This will help you track your revenue and maintain accurate financial records. You may also need to send a receipt or payment confirmation to the client, depending on your business practices or the client’s needs.

6. Manage late payments: If the payment is overdue, you may need to take additional steps. This could involve sending a more formal demand for payment, adding late fees if specified in your payment terms, or in extreme cases, resorting to legal action.

7. Maintain records: Keep copies of all invoices, payment receipts, and related communications for a specified period, typically at least for the length of time specified by tax authorities. These records can be necessary for tax purposes, audits, resolving disputes, or analyzing your business’s financial history.

What’s included in an invoice?

Some of the information in an invoice will vary depending on your business, the types of customers you work with, and the terms of your contracts. However, most invoices include the following components:

• Header: The “invoice” label clarifies the purpose of the document, ensuring the business’s financial system processes it correctly.

• Seller information: Details about the business tell customers where the invoice is coming from while fulfilling legal obligations related to taxation and business identification.

• Buyer information: Customer information is necessary for accurate record keeping, and can be an important tool in case of any disputes or audits.

• Invoice number: Including a unique identifier simplifies tracking and organization of financial records, which helps with efficient account management and reconciliation.

• Invoice date: Including the date is required for managing cash flow and financial planning, as well as determining the timing of revenue recognition.

• Payment terms: Clearly defined terms help with maintaining positive cash flow, preventing disputes, and managing customer expectations about due dates and late fees.

• Goods or services provided: Detailed descriptions help justify the invoice amounts and prevent disputes, and can be necessary for both parties’ financial records or in the case of audits. This can also affect taxation, especially when goods and services have different tax rates.

• Costs: Itemized costs show the customer what they’re paying for, and can simplify the seller’s process for calculating tax and managing inventory.

• Tax information: Appropriate sales tax or VAT calculations and identifiers are necessary for compliance with local and national tax authorities.

• Additional notes: This space provides an opportunity for businesses to communicate additional information to customers, clarify unique aspects of the transaction, or strengthen the business relationship through a personalized message.

When to send an invoice

Not all businesses will follow the same invoicing schedule or practices. The ideal timing for sending an invoice can vary depending on factors such as the type of goods or services provided, the agreed-upon payment terms, and the relationship with the customer. For example, a business that offers physical products might invoice at the point of sale, while a consulting firm might bill monthly for ongoing services.

Each business needs to establish an invoicing schedule that suits its operational model, enhances cash flow, and meets customer expectations. Here’s a breakdown of the ideal timing for sending invoices for several common business models:

• Service-based businesses
  These businesses typically send an invoice after the service has been rendered. For example, a graphic design firm might invoice a client upon completion of a website design, or a consulting company might invoice at the end of each month for services provided in that period. However, in some cases, service businesses may require a deposit or partial payment up front, especially for larger projects or when working with new customers.

• Product-based businesses
  These businesses generally invoice at the point of sale, when the goods are delivered or the order is filled—similar to a retail transaction. For example, a furniture manufacturer might invoice a retailer upon delivery of the items. However, in the case of custom or made-to-order products, such as bespoke suits or custom cabinetry, businesses may require an up-front deposit, with the balance invoiced upon delivery.

• Progress billing
  This applies to larger projects that span an extended period, typically in construction or similar industries. Here, businesses send invoices when they reach specific project milestones or on a regular schedule. For example, a construction company building a house might bill 25% up front for materials, 25% upon completion of the foundation, 25% at the “lockup” stage (when the building is enclosed), and the final 25% upon completion.

• Recurring billing
  A business providing an ongoing service or subscription might use a recurring billing model. This means businesses send invoices at regular intervals, usually monthly, quarterly, or annually. For instance, a fitness studio or a software-as-a-service (SaaS) company would use this model to invoice customers each month for the next month’s service.

• Up-front payment
  With an up-front payment, businesses send an invoice before providing the service or product. This model is often used when there’s a significant investment or high risk involved. For example, a jeweler might require full payment before sourcing expensive materials and beginning work on a custom piece.

• Retainer model
  Here, businesses send an invoice for a set amount before the work begins, and the client makes regular payments (often monthly) to retain access to the business’s services. Law firms and consulting agencies often use this model, billing a client a set retainer fee each month for a certain number of hours of service.

While these invoicing practices are typical, specific invoicing schedules can vary, and businesses should choose a cadence that works best for them and their customers. Upholding open communication and clear agreements with customers and clients about your invoicing schedule will help you maintain a healthy business relationship and ensure timely payments.

Invoicing best practices for businesses

For businesses that want to maximize operational efficiency and maintain healthy cash flow, improving the invoicing process is important. Here are the best practices businesses should prioritize:

• Provide clear identification
  Every invoice should carry a unique identification number. This simplifies tracking, allows each party to reference the invoice easily in communication, and helps with financial record-keeping.

• Include a detailed breakdown
  Include a thorough breakdown of services or products provided. Detailing unit costs, quantities, and cumulative amounts minimizes disputes and accelerates payment approvals.

• Send invoices promptly
  Businesses should send invoices immediately after the delivery of products or services. Delayed invoicing often correlates with deferred payments.

• Set clear payment terms
  Including the payment due date, preferably within a 30-day window, can accelerate payment timelines. Businesses should set clear expectations by stating any late fees or incentives for early payments.

• Adopt electronic invoicing
  Online invoicing makes it possible to automate many parts of the invoicing process, particularly if you deal with recurring invoices on a regular basis. E-invoicing can also improve precision and accuracy with invoice templates, as well as provide faster delivery and payment.

• Send out regular follow-ups
  Sending customers a gentle reminder one week before the due date, and a follow-up message soon after, is an effective way to nudge clients toward on-time payments. Businesses can set up automated systems for this purpose, ensuring consistency without significant manual intervention.

• Maintain accurate records
  Access to a complete archive of sent, pending, and paid invoices helps businesses with financial forecasting, tax computations, and audit processes. Businesses should keep records for at least the minimum period required by law, often seven years.

• Accept multiple payment methods
  By providing a variety of payment options—such as bank transfers, credit cards, and digital wallets—businesses can make payments more convenient for clients, potentially expediting the payment process.

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.