What is an Invoice? A Guide for Business Owners
This handy explainer walks you through the ins and outs of invoicing — everything from templates and workflow to handling late-paying clients..
Table of contents
- Intro to Business Invoices
- Five Frequently Asked Questions About Invoices
- What is an invoice?
- How is an invoice different than a receipt?
- Why it’s important to invoice
- Types of invoices
- Online invoicing Versus paper invoicing
- What to include on your invoice templates
- How to keep track of your invoices
- How to get paid quickly
- How to deal with late payers
Intro to Business Invoices
If your business is built around servicing clients or providing services, invoicing will be a huge part of your daily admin. This guide shares some best practice tips for all things invoicing — everything from templates and workflow to handling late-paying clients. You’ll come away with the essential knowledge to make your invoicing a breeze.
Five Frequently Asked Questions About Invoices
1. What is an invoice?
An invoice is a record of the items or services supplied to your customers, outlining a method for them to pay you for those items or services.
2. How do you create an invoice?
Square has ready-to-go, professional-looking invoice templates that you can customise in minutes. If you’d prefer to go digital, Square Invoices lets you create, send and manage invoices and payments right from an app on your smartphone or via Square Dashboard on your computer.
3. How do you send an invoice?
4. How do you manage invoices?
The easiest way to manage and keep track of invoices is by using online invoicing software. Invoicing software lets you quickly and easily send professional invoices right from your desktop or smartphone. Customers can pay you quickly and easily with just a click, and you can keep track of payment status from one centralised dashboard. Traditionally, manual tasks like bookkeeping and invoicing are completed after hours and on the admin side of your business, so being able to keep a closer eye on your invoicing means you’ll be much more aware of how healthy your cash flow is.
5. How do you select the right invoice system?
Your invoicing system should make it easy to quickly send and track invoices. Select a system that is simple to create and distribute invoices to your clients, and one which makes it easy for them to pay you.
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What is an invoice?
An invoice is a record of goods or services provided to a client or customer, and a method by which they can pay you for those goods or services. If you’re a tradesperson who has recently repaired a roof, a makeup artist who styled a wedding or a cafe that catered an event, it’s likely you need to send an invoice.
How is an invoice different than a receipt?
Invoices (and bills) are legally enforceable documents used to request a payment from your client or customer. An invoice often includes pre-agreed terms and conditions, such as the payment due date for the services rendered. A receipt is documentation that is provided once payment has been received to authorise a sale, which can be used by the client or customer as proof of ownership.
Why it’s important to invoice
A strong understanding of all things invoicing is critical to maintaining a healthy cash flow. If you let things fall to the wayside or have a disorderly invoicing process, it could signal to clients that you’re unprofessional — especially when you’re dealing with costly projects (say, if you’re an event planner or contractor). That’s not great for your brand, or for securing repeat business.
A proper invoicing process and workflow is also crucial to supporting efficient accounting. If you let invoices pile up, or if the process is confusing to your clients, it may result in your invoicing taking a long time to be settled. This is bad news when it comes to your cash flow management, and a big hassle when it comes to your accounting. Invoicing is also extremely important for tax reasons. When you run your own business, keeping an organised record of all of your cash inflows and outflows will help to simplify your business tax reporting — and copies of all of your invoices are critical to this process.
So, if you’re just starting out (or if you’re already established and are trying to get organised), it’s essential that you learn how to invoice professionally and efficiently. Your bottom line (and your accountant) will thank you.
Types of invoices
Depending on your business or the services you provide, there are different types of invoices that may make sense. Here are some common forms of invoices:
If you’re doing a large project, you may be asked to provide a quotation (or proposal) for the prospective client. This should detail what you expect the services to cost when the project is complete. Be sure to make it clear to everyone that these are estimates for the work, and not the final charge.
It may make sense to issue a split invoice which allows customers or clients to pay for part of work at a time, rather than in a large lump sum once the job is completed. This may also be relevant when an upfront deposit is required. A series of split invoices is concluded by one final invoice detailing all the work (and what’s been paid for).
If you have a company that does regular, recurring work for clients (say, if you’re a housekeeper or a dog walker), sending a recurring invoice at regular (agreed-upon) intervals (weekly or monthly, for example) will save you time re-issuing the same invoice every time payment is due.
Recurring payments are easy to set up with Square Invoices and simplify billing by ensuring you get paid each month, week, day or even year. You can even securely save a customer’s credit card on file (CoF), allowing you to immediately process the recurring invoice payment, which reduces processing time so you get paid faster.
Your final invoice details all the services rendered for a particular job or project. If there were interim invoices issued throughout the project, the final invoice should list those, as well as the final amount outstanding. We go through everything you should include on a final invoice in a later section.
If a client hasn’t paid an invoice, you may need to send a reminder invoice for any charges resulting from late payments (which were previously detailed in your terms and conditions).
Online invoicing Versus paper invoicing
Sending a paper printout of a PDF invoice to a customer is one option. But a faster, more convenient and eco-friendly method is online invoicing. Online invoicing software has some key benefits for your business:
Post is slow — there’s a reason why fewer business owners are sending things via mail these days. So, by nature, the turnaround time for getting paid by post is slow, too.
Square Invoices enables you to send professional invoices straight to your customers’ email inboxes, where they have the option to pay you with the click of a button. It’s faster for your customers, simpler for you and a whole lot more environmentally friendly.
Online invoicing can significantly cut down on time-consuming administrative tasks and help ensure timely payments.
Improved cash flow
We talked about cash flow earlier, and another way to mitigate any problems is to opt for online invoices. Faster payments mean you’re more likely to maintain a healthier cash flow.
Easier to manage
Paper invoices have a tendency to pile up on your desk — or get lost altogether. Square Invoices automatically saves all your invoices in your Square Dashboard, so they’re simple to access whenever you need them.
Square also makes tracking and managing your invoices easier, too. In your dashboard you can automatically filter invoices by payment status, so you can quickly see which clients you need to follow up with.
Quick to send
You can send invoices with Square directly from your smartphone using the Square Invoices App, which is super-handy when you’re out on the road. The ability to send an invoice right after you’ve completed a job helps avoid unnecessary administrative time back at your computer after hours.
What to include on your invoice templates
Start with a professional template
Square Invoices features a professional-looking template in which you can fill in all the pertinent information related to the project or job. We also take things a step further and include an area where it’s easy for a customer to leave feedback. Not ready to make the move to online invoicing software yet? Square also offers free invoicing templates for you to download.
What to include on your invoice
What to include on your invoice may vary from business type to business type. A dentist may want to list procedure codes for insurance reasons, while a tradesperson may want to list the hourly rate and a paragraph detailing the work and project deliverables.
Here are some general best practices to keep in mind and things that should always be included:
- Your business name and contact information
- Your customer’s name
- A unique identifier or invoice number (for your records)
- Date and terms (specifically outlining the time period you expect to be paid within)
- Price and description of the items (as well as quantity)
- Taxes, fees and discounts, if applicable.
Having everything clearly detailed helps streamline your accounting and makes the invoice easier for your customers to read and understand.
Spending time up front to implement a scalable invoicing workflow can save you time and money in the long run.
How to keep track of your invoices
Running a streamlined invoicing process means having systems in place to ensure you are sending invoices and receiving payments in a timely, organised manner. Here are some tips to help you manage your invoicing workflow:
Send invoices quickly
You’re not going to get paid if you don’t send an invoice. The first tip to efficient invoice management is to send your invoice right after you’ve completed a job. This is easy to do with Square Invoices, which lets you create and send invoices straight from the Square app on your smartphone.
Send the invoice to the right people
Sometimes it’s not the actual client who’s taking care of the invoice — maybe it’s a bookkeeper or the business’s chief financial officer. With Square Invoices, you can email both your client as well as whoever’s responsible for paying the invoice, so you can get your money as quickly as possible.
Use online invoicing
Online invoicing helps keep invoices from getting “lost in the mail.” Since online invoices are sent digitally, it’s always easy for clients to find them — all they need to do is search their inbox (rather than their junk mail pile).
Set crystal-clear terms
You need to clearly outline your terms and conditions both ahead of time (on your quotation) and on the final invoice. This includes any late fees associated with late payments. Having everything in writing is key to preventing uncomfortable back-and-forth communications.
Have an organisational system
You should have records of all your invoices in one, organised location. This is crucial not only for bookkeeping and tax purposes but also for staying on top of things. With Square Invoices, everything is stored right in your Dashboard and sorted by status.
How to get paid quickly
Based on some trends and data we see from the billions of dollars paid through Square Invoices around the world, here are some things you can do to ensure your invoices get paid fast.
Leverage these smart strategies to ensure your invoices are paid quickly and seamlessly.
Send invoices to clients on Thursdays.
We’ve found that invoices sent on Thursdays have the highest likelihood of being paid within two days.
Customise the due date of each invoice.
With Square Invoices, you can add a message for the recipient to request that the customer issue payment upon receipt. This can lead to speedier payment returns.
Avoid invoicing clients on Sundays.
People are least likely to pay an invoice received on Sunday — it’s the laziest day of the week, after all.
How to deal with late payers
Sometimes, your customers and clients may forget to pay. But Square Invoices makes it simple to follow up with people by giving you an up-to-date status of payment of all of your invoices sent with Square. Because everything is sorted in your Dashboard by what’s been paid and what hasn’t, you can quickly go in and hit the Resend button for anyone who might need a gentle reminder. That saves you the time of having to sit down and craft a bunch of awkward email reminders.