Business owners have a lot on their mind, so until the task becomes relevant, they’re not exactly spending free time wondering how to create an invoice. And, even then, for a small business owner using accounting or billing software, the purpose and importance of writing an invoice might not be clear. After all, isn’t creating an invoice just a formality?
Actually, writing an invoice, structuring it properly, and including the correct information can have a dramatic impact on your business’s cash flow. (Now you’re listening, eh?) Whether you use an accounting or billing program, a formatted spreadsheet, or a Word document when creating an invoice, you want to make sure the correct components are included.
What is the purpose of an invoice, and why is it such an important business accounting document? How do you create an invoice perfectly for your business to make sure you get paid as quickly as possible? Here’s what you need to learn about this important document and its impact on your business.
Turns out that creating an invoice isn’t just an archaic formality. An invoice is used to convey lots of vital pieces of info to your customer or client:
See why we say it can have a huge impact on your bottom line if you don’t invoice correctly?
So, if you provide products or services to other businesses, these businesses will very likely require that you create an invoice and send it over to them before they’ll pay you. Just like you might from them.
Writing an invoice is the first step in the accounts receivable process. If you’re using an accounting or billing software to create your invoices, creating the invoice will automatically post the amount of the sale to the correct general ledger accounts. You can then track the total amount each customer owes to you to make sure you receive all your payments.
For your customer, your invoice is the first step in their accounts payable process. Your invoice is a bill to them, and they’ll use the information on your invoice to validate the bill and start the payment process.
What should you include when you’re writing an invoice? At a minimum, your invoices should include the following information:
Believe it or not, the structure of your invoice has a direct bearing on how quickly you get paid. Certain customers—especially large companies, government entities, and project-based businesses like construction contractors—require specific information on invoices in order to process them.
Some of this information may include:
Make sure you understand your customers’ billing requirements before submitting an invoice so that you don’t risk having your invoice rejected. Often, incorrect invoices are not addressed immediately by the client, and once they are you addressed, you might have to reset the clock on the payment terms—further hampering your cash flow.
You can include certain things on your invoices to expedite receipt of your payment:
If you use billing or accounting software, you likely have a number of invoice templates to choose from right within the software. Often, you can adjust these templates to include specific information.
If you adjust an existing template, take the time to make sure all the information boxes align and that all details fit within the boxes. Include your logo as well. The end goal is to produce a professional-looking invoice that is easy for your customer or client to read and understand.
If you aren’t yet using a billing or accounting software package, you’ve got other options. You can buy blank invoice forms at your local office supply store, but these often require you to write invoices by hand and can give your business an unprofessional appearance.
Instead of handwriting invoices on forms, give one of these free invoice templates a try:
Taking the time to write an invoice to perfection is not something a new business owner gives much thought to, sure. But doing so can help make sure that you get paid quickly. And this really matters the world over, since it has a direct impact on your business’ cash flow. That’s critical at all points in your business, but especially so during the beginning stages.
Including the right information in the format that your customers or clients require also helps establish your expertise in their field. Writing an invoice formatted for products when you provide services, or failing to include critical information often required by your target customers can give the impression you’re not familiar with their industry.
As business owners, we always want to put our best foot forward. Writing the perfect invoice is one easy way to establish your cred and get off to a great start.