Invoicing for small businesses: the best way to make the most of an important business function
Corporate Payments And Payables
Invoicing for small businesses is often overlooked and disregarded, even though it's one of the most vital components of keeping a business afloat. Not only is invoicing important to a company, but it is hugely important to customers, suppliers and stakeholders. Here, Donna Torres, Director of Small Business at Xero, breaks down the essentials of invoicing and what it means for businesses.
What is an invoice?
Your invoices are one of the ways you communicate to your customers. They show the goods or services you’ve supplied and what you’re owed in return. An invoice shows how much your customer has to pay, when the payment is due, and the various ways they can pay.
Invoices are also tax documents. You’re required to keep copies to show how much you earned and evidence of the sales tax you’ve collected.
Why do invoices matter?
Invoices are extremely important to a business. When you’re just starting out, you’ll likely only have a few invoices to track, which is pretty straightforward. But as your customer numbers grow and the volume of work grows, it can become hectic and messy. And it can start to eat into the evenings and weekends you used to enjoy.
But don’t fret, we know exactly how to solve this. We know that getting paid on time is essential to any business. It helps to manage cash flow and gives the businesses the ability to survive and grow.
How invoicing works – from start to finish
There’s more to invoicing than you might think. It’s a process that begins when you take on a job and only finishes when the money comes in the door - meaning it could take a long time. No-one wants to be stuck in the office doing accounts, so automating as many steps as you can you can really help to get payments out the door quicker.
How to fill an invoice out
- Logo: Your business logo if you have one.
- Invoice title: A title that identifies this document as an invoice.
- Invoice number: A unique invoice number which distinguishes each invoice from all others.
- Invoice date: The date the invoice is issued.
- Purchase order number: The purchase order number if your customer has given you one. Otherwise the name of your contact person can be helpful to increase the chances of being paid promptly.
- Customer number: Your customer number if you use them to identify and keep track of customers.
- Tracking number: The tracking number for shipping if applicable.
Your business details
- Name and address block: Your business name, address and contact details. Freelancers can use a personal name.
- Contact person: The name, phone number and email address of the person to contact if the customer has queries about the invoice.
- Tax or business number: Your tax number if applicable.
- Name and address block: The customer’s name and address to send the invoice to. If it’s an organization, check their legal name as it could be different from the trading name you’re familiar with.
- Shipping address: The name and address to send the goods to. May be optional if it’s the same as the invoicing address.
List of goods and services
- Description: A brief description of each of the products or services you supplied.
- Quantity: The number of items you supplied or the number of hours you’re charging for.
- Unit price: The price per item or per hour, or the fixed price you agreed upfront.
- Price: The price for that item or service, obtained by multiplying the unit price by the quantity.
- Subtotal: The total cost before sales tax of all the goods and service listed. Make sure you apply any discounts you’ve offered and include any shipping charges.
- Sales tax: The amount of sales tax that applies.
- Total: What the customer owes including any discount, the total sales tax (when applicable) and any shipping charge.
- Deposit required: The amount of any deposit required.
- Due date: How many days (from the invoice date) the customer has to pay and the date when payment is due.
- Discount or late fees: The amount of any on-time discounts or late fees.
- How to pay: The methods of payment you offer, e.g., internet banking, credit card, PayPal, cash, check. Include your bank account number or a link so customers can pay online.
- Customer name and address block: The customer’s name and address to send the invoice to.
- Invoice and payment details: Details you’ll need to identify who the payment came from and what it’s for including the: invoice number, due date, amount due and amount paid.