As a small business owner, invoicing is just one of the many things you need to keep on top of – but it’s also one of the most important functions to manage. No invoice = no income. Here, we give you a quick run-down of the different types of invoicing for small business and the best way to use them.
It’s probable that this is the type of invoice you will use most often. It is sent to a single customer, either by post or by email, and sets out the price to be paid for goods or services supplied. It would normally contain all your business details, including your company number and registered address if you are a limited company, and your VAT details if you are VAT registered. You would also include all your customer’s contact details, a unique invoice number and details of the products or services provided. Include the total price and the ways in which the invoice can be paid.
If you are trading internationally, you will need to use a proforma invoice. Rather than being a request for payment, this invoice is used to confirm a future transaction between you and the buyer, and is usually raised for customs purposes. Once the goods have been delivered, you will be able to raise a standard invoice that includes VAT or any other taxes. It is this invoice that will request payment from your customer. A proforma invoice may also be used for new customers, to make it clear that goods or services will not be provided until you have been paid.
These invoices are most often used to accompany goods being sent out of the country to international buyers. They include the relevant duties and taxes and so are complete invoices that can be paid by the buyer. At present, you don’t need to use a full commercial invoice when you are shipping products to countries in the EU, but this may change. A commercial invoice should always include:
- the name, company name (if applicable) and address of the buyer.
- the same details for the seller.
- a description of the goods being transported.
- the country where the goods have originated from.
- the Harmonized System codes for those goods – the international system used to classify products.
If you are outsourcing invoice processing and need to use commercial invoices, you will need to provide your resource either with the relevant Harmonized System codes or make sure they know where to find them.
Credit and debit notes
These are used to update your customer about the current state of the agreement between you. If, for some reason, you owe money to your customer, you would issue a credit note to that effect. It is often used if goods are returned to you or if a mistake was made during the ordering process which meant the buyer didn’t get what they were expecting. A credit note usually means you will refund money to the buyer.
A debit note or debit memo is essentially a chasing invoice. If your buyer has not paid, you can issue a debit note which takes the original amount outstanding and adds late payment fees. It is becoming less common to issue a debit note, as companies often just re-send an invoice with late fees added. If you are using a virtual bookkeeper, this is one of the things you should sort out at the beginning of your relationship, so that your process for chasing payments is clear.
If you work for a customer on an hourly basis at an agreed hourly cost, you will need to keep a timesheet. There are various different ways of tracking the time you spend on a customer project, and your invoice should show the exact number of hours you have worked, the cost per hour and the total cost. If you have worked on several projects for the same client, split your timesheet by project, so that it is easy for them to allocate your costs accordingly. Some clients may also want to see a copy of your timesheet when you submit your invoice.
This is an invoice system that only works if both companies are VAT registered. Essentially, the buyer prepares the supplier’s invoice and forwards it to them with payment. It speeds up the process for both companies. You must have a proper agreement between you in order to start self-billing, and you must also meet some other conditions, which you can read about on the government’s website. At the moment, you can also enter into self-billing arrangements with countries in the EU.
Statement of payments
This is not an invoice, but a regular reminder to buyers of their current payment status. It can be used alongside processing invoices to make sure that both buyer and seller are aware of any currently outstanding payments, and any future payment schedule.
If you are working on a long-term project, or a project with a high value, you may choose to have staged or progress invoices. This may be for 25% up front, 25% at the half-way point and 50% on completion, for example. You may want to have a staged invoice process to follow, or you may need to negotiate it on a project-by-project basis.
For a client that is on a retainer with your business, or where there is a recurring order for certain products, you, or your outsourced bookkeeping supplier, can set up a recurring invoice. This saves time and money, and means you can budget for income coming into your business, whilst also giving your buyer the certainty that you will invoice at the same time each month.
A word on electronic invoicing…
Most businesses now invoice by email. This is an easy way to request payment, and by putting your invoice into a PDF, you can make sure it can’t be tampered with. Businesses now looking into the requirements of Making Tax Digital may also want to consider bringing in accounting software that can raise invoices automatically – these invoices should contain all the information needed to be used with your buyer’s accounting software, if you are a B2B trader. You can usually issue a variety of invoices using the software, and you can still outsource your accounting and bookkeeping by giving user access to your provider.
If you’re short on time and need help with bookkeeping and invoicing for small business feel free to call us on 0800 994 9016 or use our contact form in the menu above.