SMALL BUSINESS RESOURCES

What is an invoice?

4 min read

When you enter business ownership, there’s a lot of assumed knowledge that might need explaining. One of the first steps is learning what is an invoice and how invoicing software can help you. 

To remove the hassle of creating your own invoice, we’ve also provided a free downloadable invoice template and the bottom of this article.

What is an invoice?

An invoice is an official document that represents an agreement of sale between a buyer and a seller. 

An invoice is based on credit and represents a debt that is payable by the buyer and owed to the seller. 

An invoice document will include all relevant specifics of; the agreement, payment amount, the products and services being sold, business details, and terms and conditions.

Invoice vs. receipt

Some people get confused between these two documents. A receipt is a document which provides proof of purchase, whereas an invoice represents a ‘bill’ that’s due and still requires payment.

What is an invoice reference number?

An invoice reference number (or invoice number) is a unique numerical identifier that’s issued by the seller and included on their invoices. 

The reference number is used to track the payment of a particular invoice and will be referenced by the debtor (buyer) when they make a payment. 

By including an invoice reference number, the seller knows that when funds appear in their bank account, they’re related to a specific invoice and can confirm and report on the payment.

Purpose of a tax invoice

A tax invoice is a type of invoice that’s issued when GST is involved in the sale. This is sometimes referred to as a GST invoice.

All tax invoices should explicitly state ‘tax invoice’ as a header and must show the GST applicable and how this was applied to the base price of goods sold.

In New Zealand, the GST rate is 15%. 

If you’re turning over more than the GST threshold of $60,000 NZD, you must first register for GST and then apply GST to the prices of applicable goods and services.

For example, if you list a sale item with a base price of $100 on your invoice, you then need to add a column for 15% GST, which equals $15. 

You then add them together to display the total cost of the item in the next line, which would be $115.

Other than this key difference, a tax invoice operates in the same way as a regular invoice.

What information goes on an invoice

What should you be including on your own invoices and what should you be looking for when your business receives one? The information that should be included is as follows:

  • date of issue 
  • date range of expected payment
  • details of the products or services being traded
  • terms and conditions of the sale including late payment penalties
  • payment options such as bank details or credit cards
  • invoice reference number
  • GST (if applicable)
  • details of both businesses undertaking trade, such as contact details, trading names and addresses
  • an NZBN or NZCN

Invoice template

If your small business wants an invoice template to alleviate the hassle of making one from scratch, download our free invoice template below.

Simply visit our free invoice template page and download the invoice template, ready for you to fill in the necessary details. You can also use this invoice template if you just want to see an example of an invoice.

How to create an invoice template

So how do you make an invoice? If you choose to create your own template, a simple word document (which will usually be converted into a PDF upon sending) will suffice.

 Open a fresh document and create fields for the following:

Invoice details

This includes an invoice reference number (whether it’s a tax invoice or not), a logo, and a title.

Business details

This includes your business/trading name, NZBN/NZCN, contact numbers, address, and website.

Customer details

You also need to identify the business or person who will be receiving your bill. This includes specifying business/personal name, contact details and address.

List of goods or services supplied

Create a field for itemised lists of goods or services supplied to denote:

  • the services rendered including units such as time
  • products being traded and unit numbers
  • prices associated with each item 
  • any applicable GST or tax
  • sum total of the invoice

Payment details on invoice

Include a payment field which outlines the types of payment options available and the details of each such as credit cards, bank accounts or BPAY. 

If you apply surcharges to a particular payment type, such as credit cards, you need to specify this as well.

How can invoicing software help?

To avoid the administrative burden, potential for mistakes and inefficiencies of manually creating invoices, you should look to invoicing software to solve your invoicing needs.

While manual templates are perfectly acceptable, invoicing software will pay for itself many times over. 

Quality invoicing software will:

  • send invoices from anywhere with the touch of a button
  • allow automatic payments for immediate settlement
  • prefill invoice templates for snappy creation
  • run automatic reminders when due dates arise
  • allow reporting to see accounts receivable and income.

Better yet, if you use the invoice function of a cloud accounting software suite, you’ll have cross functionality like bank feeds and cashflow reporting. 

By keeping your invoicing under the same roof as the rest of your accounting tools, you’ll increase your depth of automation, reconciliation, GST accounting, reporting and compliance.

That concludes our quick guide to everything you need to know about invoices, tax invoices and invoice inclusions. Be sure to trial our invoice software and download our free invoice template to remove the hassle of invoicing from scratch.