Get Paid! Everything you need to know about invoicing.

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Around 5.4 million applications to form new businesses were filed in 2021, as reported by the U.S. Census Bureau.That’s a record number of business formation filings in the U.S. More and more people are going out on their own as trends shift and people look at alternative forms of work.

Starting a business can be daunting, especially before you have a steady flow of clients. And when you finally do start to build a roster of clients, you’re faced with countless questions about all different business topics–how to manage those clients, how to process payments, how to set up a proper accounting system, etc. One of the questions we get from time to time is what’s the proper way to invoice clients? Here, we’ll break down the basics of invoices and how to make sure you’re processing payments correctly.

Invoices: The Basics

An invoice is a pretty simple document. It’s just a record of a transaction between a business owner and a client or customer. Invoices are usually used to track the sale of products or services prior to payment. For many businesses, an invoice is not required, and it might not make sense to use an invoice for certain transactions. For example, when you buy food at the grocery store, the store does not issue you an invoice. You simply pay at the time of purchase and the store issues you a receipt (and logs a receipt in their system) to record the transaction. There is no need to issue an invoice because the payment is immediate. In other situations, when the payment is not collected immediately by the business owner, it can be helpful to issue an invoice to the client or customer to keep track of what was provided and what is owed. Invoices also help the business owner maintain clean accounting records and keep things organized.

How to Draft and Send an Invoice     

For the majority of businesses in the U.S, there is no set requirement for what must be included in an invoice (though, there might be certain requirements that apply to businesses in highly-regulated industries or businesses that operate in certain locations, so be sure to check on this before creating and sending out your invoices). Larger companies usually have requirements for what needs to be included in the invoice from the service provider (like a purchase order number), so before you send an invoice to a large company client, you should check with your client to understand their invoicing and payment processing requirements.   

Absent any specific requirements, an invoice should generally include the following key elements:

  1. Business owner’s contact information
  2. Date on which the invoice was issued to the client
  3. Invoice number (the business owner usually creates a numbering system for invoices to keep track)
  4. Date on which payment of the invoice by client is due
  5. Client’s contact information
  6. Description of services provided by or products sold by business owner
  7. Date on which services were performed or products were sold
  8. The number of hours worked or products sold
  9. The cost of the services or products
  10. Taxes charged by the business owner to the client
  11. Total amount due to the business owner
  12. Payment instructions and requirements

Additional information can be included and there is no set format for an invoice. A typical invoice looks like this:

Invoices can be sent to a client or customer by any delivery method. Email is usually fine, but if you haven’t been corresponding with the client over email, or you are worried that the invoice might get lost in the client’s inbox, you could always send by email and by regular mail. Larger companies often have dedicated email addresses to receive invoices and sometimes have processes you will need to follow in order to collect payment, so be sure to check with your contact at the client company before sending over your invoice.

How to Collect Payment

In most cases, you can collect payment through any payment method (though, again there may be certain requirements for highly-regulated businesses, so make sure to confirm this). Larger businesses typically collect payment through check, bank wire transfer, or Automated Clearing House (ACH). Smaller businesses usually accept pretty much any payment method, but tend to favor payment methods that don’t incur additional charges. PayPal, Venmo, and Zelle are popular payment processing tools that many small businesses are adopting these days, but they do charge fees for processing commercial payments. Whatever payment method you choose, remember to record your transactions so you can maintain good financial records and easily pay your taxes. Invoices and receipts are great tools for this!

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