What is an Invoice?
An invoice is a list of goods sent or services provided with a time-stamp that records the sum of a transaction between a buyer and a seller. It is also known as a bill.
When goods or services are purchased on credit, the invoice shows the terms of the transaction and the details for payment.
Invoices can also serve as legal records as they show the names of a seller and a buyer.
An invoice is also a legal document and it can be invalidated if it isn't correctly issued.
Elements of an Invoice
There are certain key components that an invoice must contain. These are the important pointers that show relevant information about the transactions of a business. They include;
1). The word "invoice" and the company logo must be notable at the top of the document so that they can be easily recognised.
2). The date that the invoice is issued, the delivery date of the goods or services and the date that the payment is due.
3). A unique invoice number. Every invoice document should have a unique reference number.
4). The seller's name, address and contact information.
5). The buyer's name, address and contact details.
6). The terms and conditions of the company including fines for non-payment.
7). A detailed description of the services rendered or goods including the total number, cost of each product and the total cost.
8). The taxable amount for the goods or services must also be included in the invoice.
9). The total amount due for payment including the preferred payment method.
Types of Invoice
There are several types of invoices used for transactions between a buyer and a seller. Some of these invoices include;
1). Proforma invoice: A proforma invoice is a bill or an estimated invoice that is sent to the buyer from the seller to request remittance of payment from the buyer for goods or services.
2). Sales invoice: This is also known as a regular invoice. A sales invoice is a bill sent to a buyer with a list of goods or services that have been purchased. This invoice contains the total prices of goods or services, tax, the buyer's address, delivery date, payment methods and the date by which payment must be made.
3). Consolidated invoice: A consolidated invoice makes things easier for the buyer by combining several invoices under a particular buyer's name into a single transaction with one total amount and so the invoice is paid in one payment method.
4). Overdue invoice: An overdue invoice is an invoice that is past its agreed due date. Some steps that can be taken by the seller when an invoice has become overdue are; sending payment reminders to the buyer, charging late fees or taking legal actions against the defaulter.
5). Interim invoice: This is an invoice that breaks down the value of a large project into multiple portions. It contains only a part of the total amount of the particular invoice to help fund the project and cover the cost of operations.
6). Final invoice: This is the invoice sent to let the customer know that the project has been completed and it indicates the total amount owed to the seller at the end of the project after the interim invoice must have been deducted. Just like a sales invoice, a final invoice should include the date, a list of the product and services delivered, payment terms, the total amount due and also, and the preferred payment methods.
7). Commercial invoice: A commercial invoice is an export document created as a proof of an international transaction for legal evidence.
8). Recurring invoice: This is an invoice that is sent continuously when a customer orders the same goods or services repeatedly. A recurring invoice can be sent out weekly or monthly or as often as required as stated by the buyer and the seller.
What are the uses of an Invoice?
An invoice is a legal document that shows the terms of payment agreed upon by a buyer and a seller. However, there are other uses of an invoice including;
■ An invoice helps in keeping detailed records of all transactions.
■It helps to keep track of sales and also helps both the buyer and seller to track payments and amounts owed.
■It is useful in making a catalogue for a business.
■It makes records for tax easier to file.
■Invoices are important in helping businesses collate relevant information from customers to expand the business and come up with productive marketing strategies.
■ Invoices are also important to protect a business from legal difficulties.
■ An invoice can be used in alternate financing. This is a way for a business to receive working capital in a situation where there is a restriction in cash flow. Invoices are used for Invoice Financing.
At Bridger, our primary goal is to bring B2B payment online. Since invoices play a huge role in some business financing, Bridger has a platform that allows businesses to create and manage their invoices online. To learn more, get started here.