What is an Invoice and What Does it Include?

If you’re unfamiliar with selling your own goods or services, it’s perfectly reasonable to ask questions like “What is an invoice,” “How should I invoice customers,” and “What does an invoice need to include?”

Making the leap from employee to freelancer/business owner brings a lot of challenges. Not least of these is making sure your customers pay you in full and on time!

If you’re unfamiliar with selling your own goods or services, it’s perfectly reasonable to ask questions like “What is an invoice,” “How should I invoice customers,” and “What does an invoice need to include?”

Fortunately, invoices are kind of our speciality, which is why we’ve created this handy guide. Here, you’ll learn everything from the definition of an invoice to what to include, how to send it off to clients, and what payment terms you should use.


What is an invoice by definition?

There’s no need to overthink this element of your business. After all, an invoice is simply a request for payment that you send to a customer so they can pay you. Normally, an invoice is sent after the work has been completed. The document shows what work has been done and how much the customer must now pay in exchange.

The terms “bill” and “invoice” are sometimes used interchangeably — which is fair. But neither should be confused with “receipt” or “purchase order” — as these are different things.

A receipt is something a customer receives after paying to confirm what they have bought, and a purchase order is issued by a company to authorize the purchase of goods or services. Generally, this happens before an invoice is created.

The terms “bill” and “invoice” are sometimes used interchangeably — which is fair. But neither should be confused with “receipt” or “purchase order” — as these are different things.

When running your own business, sending and tracking invoices is a crucial aspect of managing your income, so make sure you have a system in place to easily send and track your invoices and payments.


What should an invoice include?

There are several key elements every invoice needs to have:

  • The word ‘Invoice’: put it right at the top of the document, so there’s no doubt about what the customer is looking at.
  • An invoice number: this is to help you (and your customers) track which invoices have been sent and paid. Give each invoice a unique number — you can number them starting from 1 (or 000001 if you expect to be sending out a lot of them!) or use shorthand for the customer plus a couple of digits. For example, Mr. Smith might have SMTH01 on his first invoice.
  • Dates: both the date you send the invoice and the date you delivered the goods or services.
  • Address and contact details: for you and your customer so they know they have been sent the right invoice by the right person.
  • Details of the goods or services delivered: to remind your customers what they’re paying for. You should itemize these if you’ve done multiple pieces of work or delivered more than one product.
  • The amount owed: this is maybe the most important thing to get right! If you charge sales tax then you need to make this clear too, and if you have discounted anything for the customer, make sure this is clearly indicated as well. Have a big, bold TOTAL box at the bottom showing the full amount payable to avoid confusion.

Payment terms or invoice due date: people need to know when you expect payment and you need something to hang your hat on if you find yourself having to chase them further down the line.


How do you invoice a customer?

Now that we’ve got the invoice definition out the way, and seen what goes into the perfect invoice, let’s look at how to send an invoice to a customer.


Many small businesses find the fastest, most secure way is by using an e-invoicing service like Perfect Invoice.

Sending by mail, in-person delivery, and emailing your invoices to customers all have benefits, but they also take time and present different organizational issues.

Many small businesses find the fastest, most secure way is by using an e-invoicing service like Perfect Invoice. With invoice software, you can quickly create and send invoices, see whether customers have viewed them, get notified when they’re paid, and allow your customers to choose their preferred payment method!


How do payment terms work?

Payment terms let your customer know how long they have to pay an invoice before it’s considered overdue.

Standard payment terms vary by industry. For example, builders typically work on an upfront, immediate payment basis for materials and then send an invoice for labor at the end of the project on 7- or 14-day terms.

If you’re selling to businesses, however, sending an invoice once work has been delivered and on 30-day payment terms is more typical.

Our best advice? Do your research and find out what the standard is for your industry, then work within that. Of course, you should also check that your cash flow won’t be too restricted by the payment term you decide to go with.


5 tips for sending perfect invoices

Now you’re ready to create and send your invoices! Here are five key things to remember:

1. Send your invoice ASAP!

Don’t hang around when it’s time to send your invoice. Studies show that invoices that are sent earlier, and with shorter payment terms, are more likely to be paid on time than those that are sent late or have longer payment terms.

2. Empower customers to pay online

Did you know that 28% of people would be put off dealing with a small business if they offered limited payment options? Accepting online payments is a great way to open your business up to more customers, so make sure your invoices are internet-friendly!

3. Don’t be afraid to chase payments

If an invoice passes the due date according to your payment terms, don’t be afraid to follow up with the customer. A little nudge might be all they need, or you may need to advise them a late payment fee will be applied if an invoice is flagged as overdue. Don’t worry, you always have the option of waiving the fee for loyal customers who simply made a mistake.

4. Protect yourself with terms and conditions

T&C’s: it’s better to have them and not need them, than to need them and not have them! Terms and conditions give you a legal safety net in the event that a customer disputes an invoice or refuses to pay. You can include a link to them on your invoice, but you should ask customers to agree to them before you start work to make sure you’re ultra protected.

5. Use invoicing software

Choosing the right invoicing software takes almost all of the headache out of sending, tracking, and chasing invoices. You can try Perfect Invoice right now, free for 14 days, to see for yourself!

Leave a comment

Please note that we won't show your email to others, or use it for sending unwanted emails. We will only use it to render your Gravatar image and to validate you as a real person.