All businesses deal with invoices—whether they’re buying goods and services, or selling them. But it’s common for smaller start-ups or self employed individuals to have no experience creating or filling out their own invoices.
Invoices serve a vital purpose in the day-to-day workings of business. They act as a request for payment between different parties. This means they should contain all the information the buyer needs to make their payment easily and on time.
In this guide we’ll explain how to create and fill out an invoice step-by-step. We’ll also cover how modern tools and processes make invoice management easier and more cost-effective.
What information should an invoice include?
When creating an invoice your priority should be clarity. The gov.uk website lists all the necessary pieces of information that you should include on an invoice:
- The company name and address of your business and the customer
- Your contact information (phone number and email address)
- A unique identification number/invoice number
- The date of the invoice
- The date that the goods were provided
- A clear description of what you’re charging for
- The amount being charged for the goods or services (with units costs)
- The total amount being charged
It’s also good practice to include the date by which you expect to receive payment for the invoice.
The requirements for VAT invoices are slightly different. Firstly, both you and the customer need to be VAT registered. This means that you charge Value Added Tax on your goods, which you then pay to HMRC. VAT invoices should include all the standard information that you would put on a normal invoice, plus:
- Your 9-digit VAT number
- A VAT inclusive price, alongside the normal non-VAT price
To calculate the VAT-inclusive price of your goods, you simply need to add the VAT rate to the standard price. As of December 2022, the standard UK VAT rate is 20%. Certain goods are charged with reduced rate VAT (5%) and some at zero rate VAT (0%).
So, for an item that’s worth £19.99 at the standard VAT rate, you would multiply £19.99 by 1.2, to get the VAT inclusive price of £23.99.
If you’re a sole trader, you need to add your name, the business name that you use, and an address where mail can be delivered to you.
Step-by-step process to fill out an invoice
We’ve listed the essential information you need to include on your invoices. But there’s still the issue of compiling all of this information into a practical, legible document. As we’ve already mentioned, the ultimate purpose of any invoice is to set out payment terms and other relevant information in a way that is easy for customers to understand. Think about the type of invoice you’d like to receive as a customer. Chances are, ease of use would be your top priority.
Let’s look at an example invoice template for customers and explain how to fill it out:
- Your company name should be clearly visible at the top of the invoice. Clear naming will help clients distinguish your invoice from others. The design of your invoice is also a reflection of your company, so you’ll want to keep it looking smart and on-brand.
- Next you’ll want to include your customer’s contact details. This should be the relevant office address if they’re a business, or their registered business address if they’re a freelancer. You should also include your own business address and phone number.
- After this comes invoice-specific information, including invoice date, invoice number, a reference number, and the currency of the invoice fee that you are charging. Which invoice numbering system you use is up to you — most businesses have their own invoice numbering format that suits their specific requirements. Using code number/letter prefixes and suffixes for information like client name and location, service type, etc. can reduce admin load on your side.
- The main body of an invoice is usually a table which lays out each item or service you are charging for. Alongside a description of each item, you should include the unit quantity, unit price, total price and VAT price. A detailed description of each item on the invoice is important for a couple of reasons. Firstly, it helps the customer understand exactly what they are paying for (different team members may have requested different products or services). Secondly, it’s important for spend classification as it gives the customer better spend visibility, and it makes the accounting team’s job much easier when it comes to end-of-cycle reporting and calculating tax.
- Finally, you should add the due date for payment at the bottom of the invoice. Outline your expectations and terms for payment as clearly as possible. This will help you and your customers maintain a positive working relationship and ultimately ensure that you’re paid on time as often as possible.
- It’s also important to add a notes section at the bottom of your invoice. This is where you can add general comments about the invoice itself, e.g. explaining price increases on certain items, and also discounts. Discounts are a great way to build loyalty with customers. You can try running seasonal discounts, or discounts after one year of doing business together, for example. Don’t forget to add a small comment or thank you message alongside too.
Using an invoice template
It’s never been easier to find pre-made templates for invoices online. There are templates for all different purposes, which you can edit and personalise as you need. This can be a particularly important resource for small businesses and self-employed individuals who don’t have any prior experience with creating their own invoices.
As is the case when using any free template, you should try and add your own personal touch, whether that’s your logo or simply changing the colour theme of the document.
Common invoicing problems
Invoices are an essential part of business which help transactions proceed as smoothly as possible. They should be relatively easy to create and process if you follow the guidelines we’ve laid out above. However, there are some common recurring invoicing problems which cause issues for businesses and their customers.
- Incomplete or incorrect information. Sending an invoice with incomplete or incorrect information is a sure fire way to give customers a bad impression of your brand. It also means that they will be much more likely to be late with their payments, and will require additional work from your team to rectify any issues related to incorrect payment. Make sure that you always follow your standard invoice format and be sure to double check invoices with multiple members of your team before you send them to the customer.
- Unclear payment terms. You should always communicate your payment terms as clearly as possible on any invoice you send to customers. This includes any late payment fees, standard payment deadlines, charges for paying via a secondary payment method, etc. Again, the better you communicate your expectations to the customer, the more likely both parties will be satisfied with the transaction.
- Not providing a backup payment method. Best practice says that you should always include more than one payment method on your invoices. This makes the payment process more convenient for the customer, and increases the likelihood that you will be paid in full and on time.
According to Adobe, the average cost of processing an invoice manually is between $15 and $40. That’s a lot of money for a business that processes a large quantity of invoices each year. Luckily, invoice process automation can drastically reduce the average cost of invoice processing. Automated invoicing software allows businesses to extract the data from invoices via an image from a smartphone camera. It then automatically enters this data into the accounting systems, and process the appropriate transactions with just a few clicks.
This allows businesses to eliminate manual invoicing processes, like sorting through paper invoices and entering information into company ledgers. These tasks typically take up a significant amount of accounting teams’ time.
Handling invoices with Moss
At Moss we specialise in helping our customers manage their spending and payments. Our spend management software and high credit limit corporate credit cards give businesses the power to automate processes while saving money and time.
Our Invoice Management module allows you to scan invoices directly into Moss using your smartphone camera and Optical Character Recognition (OCR). You can automate the invoicing process to save your business time and money. Our software also allows you to automate the employee reimbursements process with approvals and digital receipt scanning via our app.
An invoice is a document that lays out the details of a transaction between a seller and a buyer. A seller will send an invoice to a buyer as a request for payment with an itemised bill of products and their costs.
A billing address is used to verify that the person using a credit or debit card is the registered cardholder. Billing addresses are linked to specific cards and bank accounts and are verified during payment by the Address Verification System (AVS).
Automated invoice processing systems help businesses by reducing workload for accounting and finance teams. This can save businesses significant amounts of money through processing costs and admin.
Optical Character Recognition is a process that allows software to extract written or typed data (numbers and letters) from physical documents via image files. In finance and accounting it is used to process and digitalise invoices, receipts and other documents.
How you number your invoices is up to you. You should consider using suffixes and prefixes to convey certain bits of information, e.g. the invoice purpose or month of the year it was created.