What is an invoice?
An invoice is an official notice of “payment due” for a transaction that has taken place between two parties.
Paying and sending invoices are essential parts of running a business. To be a successful, compliant, and financially stable business, with good cash flow, the concept of invoicing needs to be fully understood
An invoice is a professional and usually binding document that details a financial transaction between two parties. An invoice usually represents a bill for work done, or goods delivered, on credit to be paid by the buyer.
Professional invoices will provide itemised details of the transaction, modes of payment that are acceptable, and a due date for payment.
An invoice may come in the form of physical paper, or an emailed PDF, or can be sent electrically from software to software. Many businesses will use invoice templates or invoicing software to make the process easier and more accurate.
Types of invoices
There are several types of invoices to consider:
- Tax invoices are invoices that also include tax details like the GST amount.
- Sales invoices are invoices you issue for the buyer to settle.
- Purchase invoices are invoices from other businesses issued to you as the buyer.
If you run a restaurant and order food and other goods from a supplier, they may deliver them to you on credit, and then issue you a purchase invoice to be paid within a specified time frame. These invoices are known as ‘accounts payable’ and will sit on your books as liabilities to be paid.
Conversely, you may be a plumber who has completed work for an individual or business. Once you’ve tallied the goods and labour that are owed, you will issue a sales invoice to the buyer to be settled. These invoices are known as ‘accounts receivable’ and will sit on your books as assets to be collected.
What’s included in an invoice?
An invoice will typically include the following elements:
- Dates of issue and supply
- Unique invoice number
- Summary of invoice
- Names, business details, and contact details of both parties
- Itemised list of goods and services with prices
- Total due
- GST if applicable
- Payment details and payment terms
Free invoice template
We’ve created a free invoice template, or free tax invoice template, for you to download and put to immediate use.
This glossary is intended for small business owners and contains definitions suited to their needs. For more comprehensive explanations, we recommend consulting an accounting or bookkeeping professional. Reckon does not offer accounting, tax, business, or legal advice.
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