This checklist describes good practice for invoicing procedures.
An invoice is a document issued by a seller to a purchaser that formally requests payment for goods or services supplied. The issuing of an invoice indicates that the buyer must now settle their account with the seller according to the agreed payment terms.
An invoice is usually printed on company stationery and contains certain standard information:
The word “Invoice.”
A unique reference number.
Date of the invoice.
The seller’s tax or company registration details, where required.
The purchaser’s name and contact details.
Description of the goods or services, and date when delivered.
A purchase order number.
Unit price, where relevant.
Total amount payable, including a breakdown of any taxes, if required.
Payment terms, including method of payment, date due, and details of any applicable late payment charges.
Invoicing legislation varies globally, requiring additional information in some cases. For example, in the United States the Defense Logistics Agency requires an employer identification number; in the European Union a VAT (value added tax) number is needed on invoices if either entity is registered for VAT.
As an important administrative task, it is vital to have good invoicing policies and procedures in place to ensure a smooth cash flow into the business. Conversely, clients generally appreciate knowing your invoicing terms. Set out clear payment terms—30 days is standard in many countries by default, but sometimes it makes sense to shorten or lengthen the payment period.
Depending on the size of the company, issuing and/or tracking the status of invoices should be done daily, weekly, or monthly.
ACME WIDGETS CO. LTD
|42 Sussex Road|
|London SE26 2PZ|
|Tel: 020 8123 4567|
|Fax: 020 8123 4568|
Grommet Retail Ltd
15 Brown Street
London W8 9XX
Date: 2 September 2008
Invoice No: 032/08
|Order No. 987654||Delivery No. 321||Delivery date: 1 September 2008|
|10,000 2mm widgets @ $1.20 per widget (product code: 0042M)$12,000.00|
|Sub Total $12,000.00|
|VAT @ 17.5% $2,100.00|
|Terms of payment||30 days|
Please note that late payment is subject to interest charges and associated compensation payment under the UK Late Payment of Commercial Debts (Interest) Act 1998.
Please transfer payment to Acme Widgets Co. Ltd, Clark’s Bank, 88 Acacia Avenue, London SE36 1XP, account number 03689043, sort code 20-31-82.
Registered office: Acme House, 42 Sussex Road, London SE26 2PZ
Registered in England number: 98705432
VAT no: 66-777-888
A well thought out invoicing policy not only helps keep cash flowing, it also ensures that its administration is streamlined and easy to maintain.
There are no disadvantages to having a clear invoicing process.
Investigate automating your invoicing with suitable software. Various packages exist that can be linked to accounting programs, and some generate invoices as soon as the accounts are updated per client.
Look at the options for e-billing of clients to reduce postal and administrative costs for both parties.
Ensure that clients are aware of the range of payment options. It is possible to pay by BACS (Bankers’ Automated Clearing Services) transfer and other electronic payment systems such as PayPal or WorldPay, as well as by standing order, direct debit, and check.
Dos and Don’ts
Quote any relevant legislation on late payment on the invoice to encourage clients to pay in good time.
Consider offering discounts to clients who pay early.
Prompt clients to pay by emailing a polite reminder a week before the due date. Likewise, a statement of account a week after can galvanize late payers.
Don’t get heavy-handed as soon as an invoice is one day overdue. Better to have a clear policy that sets out incremental stages of action for late or nonpayers.