6 Major Things You Need To Know About an Invoice

Uwe Dreissigacker — March 17, 2017 Follow @uwedreiss

For almost all businesses, invoices play a very big part in keeping the cash flowing in. While they are small documents done occasionally, if they aren’t done properly, it can mean the difference between a business meeting its financial obligations and one having to take more drastic measures, even closing down for good.

However often business owners and freelancers interact with invoices, there are still many things that people may not know about invoices.

So let’s look at the seven major things about invoices you may not be familiar with.

#1 Invoices are Legal Documents

One of the most surprising things for people is that invoices are not just financial documents. Although an invoice is a request for payment, and therefore its financial aspect is emphasized, it also provides rights for the supplier.

The one condition in order for it to become a legal document is that both sides have already agreed to the features of the transaction before the invoice is sent. This could be a signature on the invoice or another form of agreement.

In the UK, for example, if no payment date has been agreed, the customer must pay the supplier within 30 days. If the payment does not arrive in that time, the customer can use a statutory demand to place a formal request for payment.

#2 Purchase Orders Are Not Invoices

One of the most confused aspects of invoicing is that many people confuse invoices with purchase orders. While commonly confused, they are actually quite different.

An invoice, as a request for payment, is created by the supplier after the goods or services have been sent to the customer. The purchase order, on the other hand, is a document created by the customer that is used to order the goods or services from a supplier.

Therefore, the purchase order comes from the customer before the goods are delivered, and the invoice comes from the supplier after the goods have been sent.

#3 There Are Many Types of Invoices

While most businesses use the standard invoice, there are in fact quite a lot of invoices in use in everyday business operations.

The specific invoice that any business will use is dependent on what type of business it is and what its operations are.

For example, businesses involved in shipping goods across international borders will need to use a proforma invoice or commercial invoice so that customs can assess the necessary duties to impose on the goods.

There are also other types of invoices such as the timesheet invoice, progress invoice and even self-billing invoice in which a customer is allowed to send an invoice to himself.

While most of these invoices may not be suitable for your business, you may find other types or processes that your business can find useful.

#4 Different Regions Have Different Invoice Regulations

For the most part, invoicing can be pretty straightforward in many countries. This includes within the US, where the regulations are quite relaxed and invoices require only tax, depending on the state.

Therefore, if you are invoicing customers within your own country or state, it can be pretty simple. However, if you have customers abroad, that’s when things can get less clear.

In Australia and Canada, for example, your invoices will need to add on GST (goods and services tax) if your invoice reaches a certain threshold. In the UK, a VAT invoice is necessary for any business that makes more than £83,000 in any 12-month period.

The EU, on the other hand, is a bit more complicated. It also requires VAT on invoices, but because of so many different EU member states, you’ll have to check the customer’s residence to determine exactly how much that VAT needs to be.

#5 It Can Be Used for Marketing

Although to most an invoice is a plain, boring and even archaic-looking document, it can be much more than that.

Marketers generally have a difficult time getting the attention of current and potential customers. They send out emails to their subscribers, as more opened emails mean more potential buyers, so they are always working on increasing the opening rates.

One important feature to remember about invoices is that it has a very high opening rate. In fact, it is very near 100% as your customers are required to pay your invoices. With so much blank space on the invoice document itself, you can actually use that for many marketing efforts.

On your invoices you can place referrals, testimonials, feedback requests, discount codes and much more.

#6 E-invoicing is Increasing

With the further digitizing of more and more processes around the world, it should come as no surprise that invoices are moving into the digital world as well.

In fact, the US federal government, which is the larger purchases in the country, is using e-invoices for about 40% of its transactions.

The 2012 Global E-Invoicing Study found that 73% of its respondents had used some form of e-invoicing, which was a 14% increase from 2011.

The reasoning is quite simple: e-invoicing can help businesses and governments save a lot of time and money. In fact, the US treasury estimated that the government can cut costs by up to 50% by only using e-invoicing, an annual savings of $ 450 million.

These are only some of the many important things about invoicing that many business owners and freelancers may not be familiar with.

However, these are also important as they can help improve your business processes, meaning reduced expenses, less time and energy wasted, and therefore greater business success.

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