What is an invoice and how does invoicing work?

What is an invoice and how does invoicing work?

An invoice is a dated document recording a transaction between a seller and a buyer. Types of invoices may include a paper receipt, a bill of sale, debit note, sales invoice, or online electronic record.

In the event where goods or services are purchased on credit, the invoice should specify the terms of the deal and provide information on the available method of payment.

​You are required by law to give your customer an invoice (or bill) if both you and the customer are VAT registered (i.e. for a business to business transaction) and you sell a customer a product or a service.

Invoicing is essential for small businesses. They are the business documents that enable companies to be paid for their services. A popular way to get started with invoices are to use invoice templates.

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What are invoice payment terms?

Invoice payment terms outline to a client when the invoice needs to be paid by. They also outline the accepted forms of payments, whether that’s a credit or debit card, or BACS transfer, as well as late payment penalties.

Invoice payments terms in the UK should be agreed before you send your invoice to the customer. If a payment date hasn't been pre-agreed, the customer must pay you within 30 days of receiving your invoice or the service.

You are within your right to charge interest for a late payment and you can use a statutory demand to formal request payment of what you are owed.

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What are the difference types of invoices?

Businesses and SMEs can create a number of different invoices for clients, and these vary depending on the industry they work in, how often they get paid and how they choose to bill for the services they offer.

Types of Invoice:

1. Proforma invoice
2. Interim invoice
3. Final invoice
4. Collective invoice
5. Credit invoice
6. Debit invoice
7. Account statement

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How do I deal with late invoice payments?

Dealing with a payment can feel like a difficult juggling act - you might need to prompt your client to pay on time but you need to make sure the relationship doesn’t turn sour. Nevertheless, if your client hasn’t paid your invoice on time, this can have a big knock on effect for your business, from a decrease in cash flow to an inability to pay your staff on time.

Luckily, there are a number of things you can do to give your business the best chance possible of being paid on time.

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What is a pro forma invoice?

A pro forma invoice is sent to a buyer in advance of a shipment or delivery of goods or services. A pro forma invoice usually includes an accurate sale price as well as a description of the purchased items, and important information relating to shipping costs.

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What is a purchase order?

A purchase order (also referred to as a PO) is a contractual agreement between a purchaser and a supplier that becomes legal once the details of the purchase order have been accepted by the supplier. It is a document that details the goods or services that the buyer has agreed to buy and the terms of the purchase.

The purchase order helps a business to keep track with what has been bought as not only does it detail the items purchased but also provides a purchase order number that will correspond with invoices and delivery notes. As the document will have details of when cash will be going out of the business and when stock will be arriving helps keep a track of cash flow and stock levels within the company.

A purchase order is also useful for the supplier as any disputes over an order can be resolved by referring back to this as the original agreement.

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What is e-invoicing and how does it work?

E-invoicing is electronic invoicing and is the method by which invoices are sent digitally from sellers to buyers.

The information contained within the e-invoice uses a specific standardised format and this enables the important information from the invoice to be automatically imported and integrated into the accounts payable systems of the buyer.

When the buyer receives its invoice in this electronic format it can be processed straight away without the need for further details to be keyed in manually.

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