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What's an invoice? Invoicing fundamentals | WorkflowMax

In this post, we cover invoicing fundamentals to help you send invoices that get paid faster. 

You’ll learn what to include on invoices, different ways service businesses invoice out jobs, and how to create an invoice.

A streamlined invoicing process can help many different types of service businesses increase efficiency. Before focussing on improving their invoicing process, one of our consultancy customers, Humankind, used to get multiple invoicing queries from clients each month, which slowed them down and got in the way of getting paid for their work. Now, after getting set up with WorkflowMax, they can’t remember the last time an invoice was questioned.

If you want to take the first step toward improving your invoicing processes, this blog post is for you. Keep in mind that every business is different and therefore will have different invoicing requirements. You can use the information below to understand some of the basics and how they might apply to your business. Let’s get started. 

What is an invoice? 

An invoice is a request for payment. It’s a document that lists the goods or services you’ve delivered to a customer, what they owe you in return, and the parameters for submitting payment. 

In addition to helping you get paid, an invoice serves a few important functions:

  • Invoices are tax documents – most regions require businesses to keep copies of their invoices to show the revenue that you’ve earned and any tax you collected in the transaction.
  • Invoices help you keep track of sales and can help you forecast for the future using previous job data.
  • Invoices help your customers keep track of business expenses with details of the services they purchased.

What to include on your invoice

Your invoices should provide your customer with all of the information required to pay you for your services. Your invoice should be clear and thorough so your customer has everything they need to pay you on time. 

The details included on invoices will vary depending on your industry, business, and customer preferences, but all invoices should enable your customer to answer these questions:

  • Who is this transaction between?
  • What services were purchased?
  • How much is owed?
  • How long do I have to pay?
  • How do I pay and to whom?

Most invoices include the following information:

Title & invoice details

Invoices are important financial documents. It’s important that your invoices are easy to identify and refer to individual transactions with clients. Include the following on each invoice: 

  • Invoice title – The word ‘Invoice’ should be clearly displayed at the top of the document.
  • Invoice number – A unique number that’s assigned to each invoice a business generates. Invoice numbers are usually sequential. 
  • Invoice date – The date the invoice is issued, which starts the countdown of when the invoice is due from the buyer.

Your business & customer details

Invoices should clearly show both parties that took part in the transaction. The person receiving the invoice should know exactly who it came from and who to contact with potential queries. Ensure you include the following:

  • Your company logo 
  • Your business’s name, address, and main point of contact 
  • The customer’s name and address – The details of the individual or organisation who is responsible for payment.

List of services delivered 

An invoice outlines the services that were provided and how much they cost. It’s best to be as clear as possible so there’s little room for misunderstanding to ensure payment doesn’t get delayed. Make sure to include:

  • Description – A brief description of each service that was provided in the job to date.
  • Unit price – The price per hour, item, or a fixed price that both parties agreed to for the service. 
  • Quantity – The number of hours or the amount of items you’re charging for.
  • Total price – The total price you’re charging for each service listed, before tax. 

Payment details

Payment terms are usually included in your terms and conditions and agreed upon before starting an engagement with a client. Your payment terms should indicate the length of time the customer has to pay the invoice and should be written out in language that’s easy to understand (for example, “Payment due within 30 days”). Payment details should also include:

  • Subtotal – The total price of all services provided, before tax. 
  • Tax – The amount of tax applied to the subtotal. 
  • Total – The total amount the customer is required to pay, including any discounts and tax.
  • Due date – The date that payment is due.
  • Discount or late fees – Any discount for early payment or late fees for late payment. 
  • How to pay – The methods of payment that you will accept. For example, electronic payment through third-party apps (such as, Stripe or GoCardless), credit card, PayPal, cash, or cheque.

Different ways to invoice

There are a few different ways that service businesses invoice out jobs and projects. Your business may use a combination of invoicing methods to suit the size of the job you’re working on and the arrangement you’ve set up with each of your clients. Here are some different ways that service businesses invoice their work:

Actual time & costs

When you invoice based on actual time and costs, you are charging the customer for the time and costs that went into delivering the job, plus markup. This method is more common for smaller scale projects. Accurate time tracking is essential to ensure you don’t miss out on billable hours.

Quoted time & costs

Often, service businesses will provide customers with a quote at the beginning of a job and invoice based on the quoted price, regardless of the amount of billable hours recorded on the job. If you’re invoicing based on quoted time and costs, it’s important to keep track of any time you had to write off so your next cost estimate can be more accurate and you get paid for more of the labour spent on the project.  

Progress invoicing

Sometimes you’ll want to bill your customers after completing certain project milestones (for example, an architecture firm completing the developed design phase of a housing construction project) or at regular time intervals (e.g., monthly). Progress invoicing enables you to get paid for work throughout the project lifecycle and is common for large, long-term projects. 

If you’re invoicing based on quoted time and costs, progress invoices should include the total quoted value, work completed to date, the amount currently due, and the total amount remaining for the rest of the project. 

Percentage of value

Percentage of value invoicing requires that a customer pays for a certain percentage of the overall quoted price of the job. This approach is common when deposits are required (e.g., 10% of the total quoted value needs to be paid at the start of the job).

Final invoice

A final invoice is the last invoice you’ll send to your customer after a series of progress invoices. It signals that work has been completed and the outstanding balance of the job is due. 

How to create an invoice

Now that you know what goes into an invoice, let’s take a look at how to create invoices. You can create invoices manually or by using software. 

Creating an invoice manually 

There are a lot of great invoice templates available that allow you to create and customise documents using free programs such as Google Sheets and Docs, or Microsoft Excel and Word. 

Creating invoices manually using templates is a great way to get started – it’s free (or very low cost) and easily accessible, which is important for a business owner building their book of clients and invoicing out their first projects. 

However, manually creating invoices can be time consuming and is prone to human error. Plus, it’s difficult to keep track of payment and cash flow. If you’re looking to save time and get more rich data about your business finances, invoicing software is the way to go. 

Creating an invoice using software

Invoicing software speeds up your billing processes and provides insights that help you continuously improve the way you run your business. 

Here are a few key benefits of using software for invoicing:

  • You can import time tracking and cost data directly into your invoice 
  • You can easily generate an invoice at any point in your project
  • You can create custom templates with your professional branding
  • It’s easy to bill multiple jobs in a single invoice 
  • Invoices can be created and sent on a phone, directly from a job site
  • You can offer a ‘pay now’ option for customers with credit or debit cards
  • You can easily track which work still needs to be invoiced out, which invoices are awaiting payment, and which are overdue

Improve your invoicing with WorkflowMax

WorkflowMax is job management software that enables service businesses to manage the full job lifecycle in one place – from quoting, to time tracking, to invoicing, and reporting. 

When it comes time to bill your clients, you can generate invoices easily, using data from your project. Plus, you can integrate WorkflowMax with Xero, so invoices are ready to be reconciled once you receive payment from a customer. 

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Paige Sopik