What is Invoice?

What's an invoice? Why is it important? What does it even look like you'll find the answers to all of these questions in this article.

Now we're going to talk invoices you'll find out what invoices are why they're important and I'll talk you through the key features with an example don't forget to read this article through until the end because I'll be answering some common questions that'll made this whole topic seem a lot clearer.

The invoicing is an essential part of any business whether you're working for yourself for a corporation, if you want to get paid, you've got to know what invoices and how to use it.

So what is an invoice

What is invoice

Let me explain a normal business transaction involves two parties a buyer and a seller.

The seller provides goods or services to the buyer and in return they want to get paid. This is a transaction, so that's the whole point so the buyer owes money to the seller how much exactly and what specifically are they paying for and how long do they have to make the payment to answer all of these questions.

The seller sends them an invoice which sets out all of this information so the buyer knows what they owe. They've gone itemized list of all of the goods and services that they're paying for and they know the terms of the transaction. They're happy so they send the money to the supplier and the transactions complete.

I've got bills, I've got to pay bills and invoices are actually the same thing they relate to the document that is sent to the buyer to request the payment for the goods and services that have been provided by the seller right so now I've got a feel for invoices are but why are they important.

Well for starters and we've touched on this already sellers want to get paid so it's important to them that invoices are sent out as early as possible. So they're not waiting around for that cash the government is also keen on invoices most countries charge some form of sales tax on transactions involving taxable goods and services GST v80 state or provincial tax you might have heard of some of these an invoice a record of the transaction that splits out and identifies.

The sales tax, so they're actually required by law for transactions involving registered businesses if you'd like to know the specifics then I recommend you check out your local tax authorities website from an accounting point of view invoices are also important because they trigger the accounting entries in the books of both the buyer and the seller.

They're used to track accounts receivable and accounts payable. So we know what invoices are and we know that they're important but what it actually look like let's create one and find out there are plenty of ways to make invoices Google sheets actually has a built-in invoice template if you need to fire one off quickly but if you want to be more organized and have the ability to track payments and make reports then I recommend use some sort of cloud accounting software like QuickBooks Online, Xero or FreshBooks.

I'll link to all of these down below here we've got an invoice that I've thrown together using the sample company from QuickBooks Online this is a very typical invoice layout.

So it's a great place for us to start and run through all of the key features first of all we've got the names and addresses of both the buyer and the seller who's this transaction between, well in this example we've got Craig's design and landscaping services selling two cool cars and on the other side, we've got the invoice number 1038.

This is a unique number that identifies the invoice usually invoice numbers are sequential. So the next invoice raised by this company would most likely be 1039 below that we have the invoice date in this case it's the 17th of Jan this is the day that the invoice was created and it's critical to include it because it starts the countdown when the payment is due from the buyer and how long have they got.

Well that's determined by the sale terms which in this case is net 30 days so the whole payment is due within 30 days of the invoice date that's a common wait time but terms can vary depending on what's been agreed 30 days after the 17th of Jan is the 16th of February day, that we can also see here.

Next we have the description of the goods and services that this invoice relates to in this case it appears to be some kind of custom design work. It's best to be as specific as possible in the invoice description because you don't want to cause any confusion and delay that payment to the right of the description.

We have the quantity rate and amount here the service has been provided just once and the amount per-unit was for 350 dollars, So in this case both the amount and the subtotal are for 350 dollars below that we've tacked on a sales tax of 8% because the taxable service has been provided that comes out to $28 and that leads us with an invoice total inclusive of tags of 378 dollars before we wrap up this video I'd like to answer four common questions that people tend to have when it comes to invoices.

Question no 1: When should I sent invoice?

Invoices are most commonly sent out after the goods and services have been provided however they can also get sent out before depending on what's been agreed between the two parties however the accounting treatment in each situation is different.

Question no 2: Our invoices and sales receipts the same thing?

The short answer is no, however this is confusing because there are a few similarities both serve as evidence of a transaction and both are produced by the seller and given to the buyer however the key difference is then invoiced as a request for a payment. So it's issued before the payments be made where is a receipt that's issued after.

Question no 3: What's the difference between a sales invoice and a supplier or a purchase invoice?

Well they're actually the same thing they're both invoices the difference in their names depends on your perspective if you're the seller then you call it the sales invoice and if you're the buyer you'd call it a supplier or a purchase invoice.

Question no 4: is an invoice legally-binding in general

No they're not an invoice by itself isn't legally binding if they were then what would stop me from just making all the money by just pouring out invoices to whoever you want in order for them to become legally binding both the buyer and the seller have to agree on the terms.

I can't speak for the specifics of your country but in general it's important that both sides have evidence of the agreement at least an email or better yet in a signed contract. You don't want to be that person that gets in a situation where the client or customer is refusing to pay because that sucks pretty bad.

I hope that helps clear up some of your questions about invoices.