InvoiceBerry Blog

Our thoughts & tips on small businesses, freelancers and sole traders

What Is an Invoice And How Can I Make One?

Written by on January 23, 2017

When most small businesses start working on their own finance documents, they often ask: what is an invoice?

Invoices are, in many ways, the bread and butter of most businesses.

They are very important for businesses because they are the basis of increasing cash flow. Once the seller provides the buyer with an invoice, the buyer has an obligation to pay.

There are many aspects to invoicing (most of which are very specific), and which may be different for you depending on your industry.

In our full guide today, we’ll look at everything there is to know about invoices and how you can make your own invoice using Microsoft Word or Excel.

What is an Invoice?

To begin with, we need a clear invoice definition.

An invoice (agreed upon by both sides) is a legally-binding document that indicates to the buyer the payment that is owed for the product or service the seller has already provided. These can be products or services, or a combination of both, and lists the agreed-upon prices for these goods.

Therefore, an invoice is by definition non-negotiable.

An invoice is different from a receipt, as the receipt is an acknowledgement of payment, whereas an invoice is a request for payment.

While the seller creates the invoice and provides it to the buyer, both parties have different terms for them.

The seller calls it a sales invoice, whereas the buyer calls it a purchase invoice. In effect, however, they are the same document.

The difference in name is only for filing purposes in the appropriate accounting department.

A purchase invoice goes to your account payable (liabilities), whereas the sales invoice goes to your account receivable (assets).

The Anatomy of an Invoice

While there are many different types of invoices, they all tend to have the same sections (although they may be in different places).

What is an invoice? These are the most important parts of any invoice

These sections include:

1. The name and contact information of the seller

You should clearly state who you are, including your logo, address, email and phone number.

2. The word ‘invoice’

You should make the word invoice prominent so that the buyer (your customer) will see exactly what the document is about.

3. A unique invoicing number and date of the invoice

Your invoicing number should be uniquely identifiable to your business. Your invoicing number should be unique and sequential, meaning only one invoice has that invoice number.

You can choose to do it either as numbers only (0034) or letters and numbers (JGN0045). It is necessary to include the date of the invoice for record-keeping and tax purposes.

4. The name and contact information of the buyer

Your client’s details should also be clearly stated and placed in such a way that you it will be seen through the window envelopes when the invoice is folded and mailed.

These are the first four sections of an invoice

5. A description of the product(s) or service(s)

Make sure that your product or service descriptions are accurate and clear. Each item has to be put in a separate line.

6. The date that the goods or services were provided

You should include when the product or service was provided to avoid any confusion.

7. The quantity of goods sold

Write down how many goods were sold—do so for each product or service listed.

8.The unit price of the product(s) or service(s)

For each item, include the unit price, even if they are all the same price.

These are the other important parts of an invoice

9.The total amount being charged

Your total, including taxes, should be shown clearly at the bottom, optimally in a different size font.

10. The due date for the payment

You should always include a due date for your invoices. Although 30 days is standard, it is actually better to set the payment due date at 15 days.

These are the last and also important parts of the invoice

Other important parts of an invoice

It is also recommended to include other invoice sections, such as the payment terms which discusses the due date for the payment, any charges for overdue payments, and the method of payment.

Other invoices may also contain any necessary taxes (such as GST, VAT or other local taxes), credit terms,  discounts, and the tax or registered company details (such as the business number).

In countries where e-invoicing is common, it is standard to include the bank account number of the seller along with a reference code for online or wire transfer payments.

Legal Requirements of an Invoice

Different regions have different legal requirements for invoices. We’ll take a look at three countries to see how their invoicing regulations differ.

The United Kingdom

The invoicing requirements for the UK are not far off from what we discussed in our previous invoice definition section.

For sole traders in the UK, your invoice should include your name and business name being used, if any. It should also state the address where legal documents can be sent if you are using a business name.

For limited companies, your invoice should include the full company name that appears on the certificate of incorporation. If you are adding any names of directors on your invoices, then your invoice should include the names of all the directors.

If you and your client are VAT registered, you have to use a VAT invoice. VAT invoices generally include more information than non-VAT invoices, such as your VAT registration number.

Unless otherwise agreed, the client has an obligation to pay you within 30 days. If payment is not made in time, you can use a statutory demand to make a formal request of the payment owed to you.

Some UK business require taking money from a client each time they use a service, such as online trading. In those instances, you will need to first get authorization from the Financial Conduct Authority.

The United States

Luckily for business owners, the US doesn’t have national regulations on invoicing.

It may differ state-by-state, but most businesses only issue simple receipts to their customers.

As we mentioned above, a receipt is not the same as an invoice, and cannot be treated as such.

This is an example of a Square receipt
This is an example of a Square receipt

Receipts show the payment that has been done, while the invoice shows the payment that needs to be done.

In the case of selling digital goods or ecommerce, the invoice will differ by showing the line items of the products or services being sold.  It will also have specific details about the client.

If you are in the US and selling only to customers in the US, then you don’t need to create an invoice for your customers.

Canada

GST (goods and services tax) is mandatory for certain sales, with requirements based on different sales minimums.

Although Canadian federal laws do not require GST to be explicitly shown on the invoices, there are other requirements based on the sale amount.

These are the requirements for Canadian invoices concerning GST
These are the requirements for Canadian invoices concerning GST. Image source.

Australia

Businesses in Australia are mostly required to charge GST (goods and services tax) on all sales. These sales must be itemized on an invoice.

This also applies to foreign or international businesses operating from within Australia.

For business outside of Australia but selling goods or services to Australians valued at more than AUD$1000, GST may also be required.

The European Union

EU member states (which excludes the UK) have stricter invoicing regulations than the Americans do. In the EU, it is necessary to charge VAT when you are selling products or services.

This includes additional responsibilities for the seller beyond what is listed in the invoice definition section. The seller must:

  • charge and itemize VAT based on the country in which the buyer (customer) lives
  • include the VAT number on the invoice
  • show the VAT number of the customer (if the customer has a VAT number)

Even more onerous is the fact that each EU member state has its own rules and VAT rates based on differing exemptions.

In order to be fully compliant, your invoice has to be set up correctly for each and every EU member state your customers are in.

More than that, the EU is pushing for electronic invoicing (e-invoicing) to be the invoicing standard by 2020. This means that you’ll soon have to seriously consider switching over to digital invoices if you haven’t already.

Although most small businesses sell to customers within their own country, many businesses are beginning to sell across borders.

This is great from a revenue perspective, but brings with it its own downsides.

In order to be compliant with the country that the buyer (customer) is residing in, it is best to talk to a knowledgeable accountant or tax lawyer specializing in international business.

How to Use an Invoice Template in Word

Now that we’ve looked at what an invoice is and what the requirements are in different regions, you’ll probably need to know how to create an invoice.

There are many invoice templates available online—some good, many not so good. We’ll be using the InvoiceBerry invoice template for Microsoft Word.

If you’re ready to create your own invoice template, just follow the steps below.

1. Download the invoice template for Word

Click here to download the InvoiceBerry Word template.

 

Head over to our invoice download page to use your invoice template in Microsoft Word

 

2. Add your logo to your invoice (optional)

Because it’s a Microsoft Word invoice template, there are many ways you can customize it. One way is to add your own logo.

Click on where you want your logo to be (we’ll put ours to the left of “Your Company Name”). Then click on Insert and Picture.

 

In order to add your logo to your invoice template, insert your logo image file

 

Navigate to where your logo is saved and click on Insert. Now, your image will not be aligned very well and may push the other text to the side.

 

You will need to adjust your logo after you insert it into the Word invoice template

 

We’ll fix that quickly. Resize your image to the size that you’d like, then head over to Format.

Click on Text Wrapping and choose Square.

 

This is one way to quickly fix the alignment problem for your logo on the invoice template

 

You can now move the image around as you wish to line up with the text.

 

When you format your image as Square, you can quickly align the text

 

3. Enter all the necessary details, such as your company’s and the client’s details

Here, as you can see, I’ve deleted our company’s phone number and instead included the email address.

I’ve also deleted the “Shipping To” section, as we don’t ship our services to our clients.

 

Now you can enter the details for your business and your client

 

4. Add in the invoice details

Here you’ll need to assign a unique invoice number for the client as well as the date the invoice will be issued.

 

Enter in your unique invoice number and invoice date

 

5. Enter the product details

Fill in the Quantity, Description, Unit Price and Total for the line item.

 

Now you should enter all the details for the product or service that was delivered to the client

 

As you can see, we don’t need the table above the item description (beginning with Salesperson) or have any comments, so we’ve deleted those.

 

Delete all the boxes or information that are not needed

 

6. Enter the totals

Here you’ll need to enter the subtotal, any applicable sales, and the Total Due.

 

Now it is important to add up the items to come to the total amount of the invoice

 

Don’t forget to add your payment terms, including the time allowed for payment and the contact person.

 

Before sending your invoices off, you should add in the payment terms and other information

 

7. Print or save

After that, you can either print your file or save it as a PDF to email it to your customer.

 

You can choose to print your completed Word invoice
You can choose to print your completed Word invoice

 

You may also decide to save it as a PDF or Word document to email it to your client
You may also decide to save it as a PDF or Word document to email it to your client

 

8. Your completed invoice

 

This is how your completed invoice will look with Microsoft Word

 

You can even customize it to your tastes.

 

Microsoft Word makes it fairly easy to customize your invoice as you wish

How to Use an Invoice Template in Excel

Invoice templates for Microsoft Excel have some differences from the ones for Word.

Although there are fewer editing options, the way Excel works means that your totals can be calculated automatically in the document.

This is especially useful for invoices with lots of items, taxes, or any more-complicated numbers involved.

1. Download the invoice template for Excel

First, you’ll need to download the Excel invoice template found on InvoiceBerry’s invoice template download page.

 

In order to create your invoice, you need the invoice template for Excel from InvoiceBerry

 

2. Add your logo to your invoice (optional)

One way to customize your invoice is to add your own logo.

Click on where you want your logo to be (we’ll put ours to the left of “Your Company Name”). Then click on Insert and Picture.

 

Now we will begin by adding our logo to the Excel invoice template

 

Navigate to where your logo is saved and click on Insert. Now, your image will not be aligned very well and will be right on the text.

 

Now you can add your logo to your invoice

 

Just move it to the right side of the page and resize the image as much as you’d like.

 

Move your logo to the right to make the text align with the image

 

3. Enter the contact details

Enter all the necessary details, such as your company’s and the client’s details.

 

Include the details for your company and your client

 

4. Add the invoicing details

Add in the unique invoice number for the client, the date the invoice will be issued, the due date and payment terms.

 

Add in the invoice number, due date and other information here

 

5. Enter the product details

Enter Quantity, Description, Unit Price and Total for the line item.

 

Now you have to enter the information for the product or service already delivered

 

6. Print or save

After that, you can either print your file or save it as a PDF to email it to your customer.

 

Now you can either print off your Excel invoice template
Now you can either print off your Excel invoice template
or you can save it as an Excel file or PDF to email it
or you can save it as an Excel file or PDF to email it

7. Your completed invoice

And here is the final invoice. You can also customize it as you wish
And here is the final invoice. You can also customize it as you wish

Summary

Because invoices are so crucial to business, it’s important that there is a clear understanding of what an invoice is and how to use one.

To note:

What is an invoice?

An invoice is a legally binding, non-negotiable document that the seller sends to the buyer after the products or services have been provided. The buyer must pay the invoice within an agreed-upon time.

What is the structure of an invoice?

An invoice has 10 mandatory parts, including

  • the seller’s name and contact details
  • the unique invoice number and date of invoice
  • the buyer’s name and contact details
  • the product or service description, including the quantity, unit price and date of delivery
  • the total amount of the invoice
  • the agreed-upon payment terms, including the due date

What are the invoicing regulations for different regions?

While invoices have similar structures, there are some differences in the regions.

The most relaxed in terms of rules is the United States of America.

England and EU member states have stricter requirements, where the latter requires much more rules, different for each member state.

Canada and Australia require GST based on certain factors, such as the size of the invoice.

If you are selling to international clients, it is recommended that you get advice from an accountant or tax lawyer specializing in international business.

Check out our infographic below to help you understand what an invoice is.

Check out our infographic "What is an invoice?" to help answer your invoicing questions
Check out our infographic “What is an invoice?” to help answer your invoicing questions

With this resource, you’ll be able to understand not only what an invoice is, but also how to use one the right way.

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