What is an invoice?

4 min read

Starting a small business comes with plenty of new things to learn, including how to master the art of invoicing so you can get paid faster. In this article we’ll work through what an invoice is and the basics of how to make an invoice – ensuring you get it right before issuing them to clients and customers.

What is an invoice?

An invoice is a document your business creates to bill a client or customer for the goods or services you’ve supplied to them. An invoice functions on the basis of credit and represents a debt payable to you for work completed or goods supplied. 

A professional invoice will contain all the details necessary to receive payment from a client or customer (debtor). It will also be used to calculate profit, pay any VAT or income tax required, and help compliance and accounting tasks.

Why is it important to invoice properly?

If your cashflow is centred around issuing invoices to your customers for you to get paid, it’s important you get it right. Otherwise, you’ll be wasting time chasing late payments and have poor cashflow.

Key reasons you need to be invoicing properly:

  • If you don’t invoice correctly, payment becomes harder.
  • Cashflow will be disrupted if you issue erroneous or unclear invoices.
  • You’ll create a professional image of your operations which increases trust and repeat business.
  • You’ll be legally covered in the event of non-payment, so long as you include adequate terms and conditions.
  • You’ll be able to dictate late payment fees or early payment discounts.
  • You’ll be paid faster by including easy and common payment methods.
  • You’ll be able to correctly calculate, claim, pay and report on any applicable VAT.
  • Your accounting will be clear and straightforward.
  • It will reduce bad debts.

What exactly is an invoice template?

An invoice template is an editable document which lays out the fields and common inclusions necessary to create personalised invoices.

You’ll generally have a logo and your business details as a header and other permanent features, including payment options, as a footer.

The body will contain editable sections where you can fill out specific details such as the invoice amount, an itemised goods and services list, applicable VAT, and customer details.

Pro Tip: If you’re using invoicing or accounting software to create and send online invoices, your invoice template will be created and managed directly within your solution. This is the most common and modern method of using invoice templates as it boasts many advantages over paper invoices. Such advantages include ease of use, prompter payment, simpler reporting, and more streamlined accounting.

How to create an invoice template

You can generate an invoice template yourself by creating a word document which includes all the details in the list below. Alternately, to make things simple, we’ve created a professional and free downloadable invoice template you can put to use.

What information is required on an invoice?

If you’re issuing invoices for the first time, you’ll need to understand what information is required. Let’s unpack the standard inclusions of most business invoices, step-by-step.

Invoice details 

Your invoice details will include:

  • invoice number (reference number)
  • logo
  • date of issue
  • date of goods/services supply
  • VAT number (if applicable)

Your business details 

Your business details will include:

  • business/customer name
  • address
  • contact information

Customer details 

Your customer details will also include:

  • business name
  • address
  • contact information

List of goods or services supplied 

You’ll need to include a detailed list of the goods or services you supplied your customer. 

Not only is this necessary for your customer to be sure of what they’re paying for, it’s also essential on your end to assist with your accounting and reporting.

In addition to base prices, you should also include a column next to your list of goods/services, where you note any VAT that may be applicable to each item.

Amount owed 

Once you’ve created a full itemised list of deliverables, with corresponding prices and a column for VAT, you’ll need to tally them up. Be sure you clearly lay out the base price and the VAT in separate columns and then a final line that states the sum total.

It’s important that this line item section is clear and you should always show your calculations (e.g. 3 hours x $500/hour) to remove any doubt of the amount owed.

Payment details on invoice

You must provide payment details on your invoice and options for your client or customer to pay their invoice. It’s best practice to include a variety of payment methods to cater for the preferences of each customer. Without going overboard, select a few common and trustworthy options such as:

  • bank transfer
  • credit card
  • PayPal
  • BPAY

Pro Tip: With invoicing software you can include a ‘pay now’ button next to each payment option to streamline and simplify customer payment. This ease of imbursement will lead to faster turnaround times, healthier cashflow, and less hassle on both ends.

Payment terms

You must also include clear payment terms on your invoice. These terms and conditions will state the due date for payment, any late fees, any early payment discounts, and actions for non-payment. 

For example, if you’re a freelance photographer, you may wish include a clause that dictates that you’ll retain intellectual property rights over your images until payment is made.

If you’re unsure of how to create reasonable payment terms, or what to include, please consult with a business advisor or legal service.

This concludes our ‘what is an invoice?’ guide. You should now have a firm understanding of how invoices work, what they include and how to use and create an invoice template. You can also view our full small business invoicing guide for other common invoicing questions.

Free downloadable invoicing template

Our free invoicing template gives you a professional looking layout that you can fill in your company and customer details, and information about the product or service you’re selling. Save time on manual processing, so you can focus on growing your business instead.