What is an invoice?

An invoice is also termed as sales voice, which is the document sent by the product or service provider of the product to the purchaser at the time of making the purchase. The invoice state the obligation on the part of the purchaser to pay after having that product. In other words, Invoice is a written verification of the agreement between the buyer and the seller of the goods or services at the time of purchase or after having the purchase.

An invoice serves as detailed information of the product or service and details of other information that depends upon the requirements of the customer in the country the invoice is issued and type of good or service being sold by the business organisation. Invoice is an important part of every business accounting because they record sales transactions.

What does an Invoice contain:

The important information contained in an invoice are:

  • The date on which that invoice is created. Invoice always contain dates. The date on invoice tells the clock ticking on the customer to clear his dues. If the customer has terms ( a time limit for payment), the business wants to include the data so that they are aware of the payment made to be clear.
  • Names and addresses of the customer and supplier. If any business organisation is creating the invoice in accounting software, then they must mail the invoice to the customers. It is always a better idea to collect and include a physical address in case if they need to send a letter or any document.
  • Contact the names of the individuals of the business organisation and the customer. It’s a good customer relation rule to make sure that business organisation know the name and spell them correctly.
  • Description of items purchased, either it is product or service, includes prices and quantities. Often the business organisation to display the standard items description and inventory number. The business organisation adds this part in invoice because this help to avoid confusion “I didn’t know” issues.
  • Terms of payment- This include the entire amount and due date to clear that amount.

Why is invoice so important:

An invoice is a pillar and a backbone of every sale process. It serves as the main document for the product or the service being provided to the customer by any business organisations. A properly created invoice serves as a legal document of the transaction. Invoices are important not only for keeping the track and records of sales and payments, but they can also be used in such cases where the payment is missing or getting delayed for a long time with more formal legal actions.

How to send an invoice to a customer:

An invoice can be done with two different methods. The first method includes online business software method and the second method include pre-printed invoice that business complete after making any particular sale to his customer. The process is the same for both the invoicing processes. A business prepares an invoice only after they have shipped or delivered the product or service to his customer. The various steps required are as follow:

  1. Start by identifying the customer. In some cases, businesses need to know about his sub-customer or job within that customer’s file.
  2. Including any previous document numbers which are related to that sale, including any prior purchase or sale agreement or any rough estimation.
  3. Identifying the items to be sold or to be delivered, which includes the name of the product or the service, its quantity, its rates ( per item or per hour charges). If a business is using n online software then the total for each item is automatically calculated. In this condition, the order is termed to be back-ordered.
  4. Each items has its own line and the total of all lines are added.
  5. Business can include information related to any deposits already made by his customer or any discount applied to that invoice. This information needs to be mentioned in the invoice.
  6. The business may offer different payment method and possible discount so that the payment is done as soon as possible before the mentioned time on the invoice.
  7. Shipping terms and conditions must be mentioned in the invoice or along with the invoice. There are two types of shipping terms and conditions. First shipping condition is FOB shipping point i.e. free on board. Second shipping condition is FOB shipping destination. FOB shipping point states that shipper has already clear all the shipping charges. FOB shipping destination means the customer has to clear the shipping charges. It is always a good idea to note if the customer picks up the items, in case if there are any questions regarding the product delivery.
  8. Invoices contains the term of sales. Term of sale denotes the time when the business wants their customer to clear all their pending dues related to the product or service delivery. These terms are expressed like 2/10 Net/20.That means that a business organisation is offering 2 per cent discount if the payment is made within the next 10 days, and an entire balance is due in 30 days.

Invoices can be e-mailed or mailed or faxed to the customer. When a customer clears his obligations, the invoice number must be noted on the sales receipt and should be matched with the sales receipt in the accounting. The payments take the outstanding amount of the original receivable account.

Invoices VS Purchase order:

People often get confused with Invoices and Purchase order. Purchase order (PO) is made to the customer before the transaction and invoices are made to the customer after the transaction by the business organisation. Purchases orders record an order by the customer to the supplier or to the vendor. On the other hand, an invoice records the receipts of the product or service and the terms of payment. Purchase orders are used by most of the companies as part of their approval process. Some companies even require a purchase order for the products or services over the specific order or specific amount.

Invoices VS Bills:

The main difference between invoices and bills are focus and standpoint. The invoice is created by a supplier and it is referred to as a statement of service or products and delivered to the customer, including all the amounts owed. An invoice may be created before or after the service is received by the customer. It is mandatory for an item to have its invoice so that the recipient can check the items and make sure that everything is available or not