How to Create an Invoice Like a Pro
Learning how to create an invoice like a pro may seem overwhelming to start, but it doesn’t have to be.
Starting a business is a very exciting and busy time. When you finally get off the ground and find yourself with a client, everything feels new and fresh, and exhilarating. You’re finally on the road!
The end goal, though, is to get paid and support yourself through your work. Knowing how to properly manage your finances and records from the start ensures that you will actually get paid. Making invoices and keeping accurate records might not be fun, but starting out right is a vital piece of making sure you get paid promptly from the get-go.
Accurate record-keeping is a vital part of running your business. Not only is accurate record-keeping required by the government, but it can come in handy in several situations:
- If you ever get into a dispute with a client over services or prices
- If a client decides they don’t want to pay
- If you want to look back over your finances
- If your client asks for records that they misplaced on their end
- If you decide to merge or sell your business
- And many more situations!
Before I get into the details of how exactly to make an invoice, though, let’s get familiar with the difference between an invoice and a sales receipt.
Does Your Invoice Scream Amateur?
Sales receipt vs Invoice, what’s the difference?
Both sales receipts and invoices are “bills of sale,” but they serve two separate functions. In a nutshell, a sales receipt shows proof of payment, while an invoice is a record of a sale that you’ll receive payment for at a later date. As a professional, your invoice is an important communication between you and your client base.
Don’t you agree that your request for payment should be given the same care and attention as your social media profile?
A sales receipt can serve as proof of ownership for the buyer. The buyer gets a sales receipt from the seller when a sale is finalized. Receipts can give information about where the sale took place, such as an address or phone number for the business, but they don’t always have information about the buyer. You’ll almost always get a sales receipt at restaurants and retail stores, where the payment takes place at the time of the purchase.
Invoices are bills that detail the goods or services that already have been purchased or will be purchased by the buyer. They’re a request for payment, similar to a purchase order, but are given by the seller to the customer. Invoices describe price, quantity, discounts, taxes, and other information about the order. When a buyer gets an invoice, they’ve made a contractual agreement to pay for the goods or services purchased. Invoices include information about the seller, such as the business’s name, address, phone number, and web address. They also include contact information for the buyer and the date of the transaction.
So, let’s forget about sales receipts for now. It’s less likely that you’ll use them in your business, but even if you do, they’re simple. Invoices are a little more complex, but they’re totally doable. Without further ado, here’s how to make an invoice!
Is Your Invoice Missing These Key Elements?
You can dress up invoices in any way you want, as long as you have the necessary information. You can add a logo for your business, uses a fun font, or print on coloured paper. You can send the invoice electronically. However you decide to do it, there are still a few things you must have to be professional and satisfy your record-keeping requirements for the government. Below is a list of the things you absolutely need to have on the invoice:
- The full, legal name of your business. Pretty self-explanatory!
- The date of the transaction. It must be the date that the actual transaction took place. Here’s where you’ll need good record keeping, or at least a mark on your calendar!
- Unique Identifier. Known as an invoice number or reference number, this is a numeric or alphanumeric string within your system that distinguishes each invoice from the next.
- An itemized list of the goods and services that you are selling. Make sure you add the quantity for everything. Remember: details are your friends, not your enemies. You can even feel free to also make notes on what you are NOT including, just to cover all your bases.
- Taxable items. If an item is taxable it should be marked as such, identifying which sales tax is applied. There are a few rules for taxes, however. If you don’t have a Business Number, you cannot include tax amounts on your invoices and/or sales receipts. This is a huge no-no, and is considered fraud! Don’t do it, end of story. If you have a Business Number and you’re including sales tax on your invoice, it is necessary that you very clearly identify your business number as such, so you don’t get accused of fraud.
- Your terms. This section of the invoice defines when you expect your customer to pay you. Some of the most common terms vendors offer are:
- Due in Advance: this is used if you require payment before you get started.
- Due on Receipt: the amount is paid when the customer receives the invoice.
- Net 15: payment is required no later than 15 days from the date of the invoice.
- Net 30: payment is required no later than 30 days from the date of the invoice.
- 2% 10 Net 30: here you are offering a 2% discount on the invoice in exchange for prompt payment, which in this case would be within 10 days. Otherwise, the full balance is due within 30 days.
Bonus Tip: How to Charge Interest on Overdue Payments
Planning to charge interest on overdue payments? You’ll need to state it clearly on the invoice (and cannot be in a font size smaller than 6 points). You must also detail the interest rate you are applying to any outstanding amount with the compounding frequency. Keep in mind that unless you are a credit card or money lending company, you cannot charge something large and outrageous, like 19% interest. It is fairly standard to charge up to 2% a month, or 24% a year.
There you have it! These are the basics of how to create an invoice like a pro. I hope that these guidelines can help alleviate any stress you might have about how this all goes down. Check out the attached image for a visual representation of what your invoice should look like.
If this still feels daunting, consider hiring a professional bookkeeper to get you on the right track. Feel free to drop me a line if you have any questions, and if you like what you’ve just read, share the love!