After all the work put into making and fulfilling a sale, creating a sales invoice may not seem like the most important part of the process.
And yet, without a sales invoice, you might deal with missed payments, late payments, purchase disputes, and general recordkeeping headaches.
If you care about making a sale, you should care just as much about how you’re processing that sale and communicating with your customers throughout. The key to getting that right is mastering the sales invoice.
What is a sales invoice?
A sales invoice is a document issued by the seller and sent to the buyer to request payment for the goods or services provided. It’s a crucial step in the sales process for accrual accounting, as it formalizes the sales transaction through an agreement between the two parties.
The seller uses sales invoices to document the revenue earned on a transaction and track accounts receivable.
The buyer uses sales invoices to track their liabilities (accounts payable). The sales invoice also provides a clear and transparent record of what was ordered, at what price, and how it adds up to the total owed amount.
The key components of a sales invoice
A sales invoice is comprised of these eight key components:
- Billing business information: The sales invoice needs to clearly document who issued the bill, including the business name, address, contact information, and tax identification number.
- Customer information: Likewise, the sales invoice needs to list the customer information, including the buyer’s name, company (if applicable), billing address, and contact information.
- Invoice number: A unique string of numbers that identify the invoice and is used in the recordkeeping process.
- Invoice date:The date on an invoice is the date that the invoice was issued. If you’re a business that bills on when the sale is agreed upon, that will be the date listed. Comparatively, if you bill on delivery, the invoice date will be the delivery date.
- Payment terms: Payment terms include the accepted payment methods, early payment discounts, late payment penalties, and when payment is due. You may hear terms like net 30 payment terms which means payment is due within 30 days of the invoice date.
- Itemized breakdown: The goods or services that were purchased, with a clear description of each line. Also include a per-unit price and unit total, multiplied for the total for each line item.
- Invoice total: The invoice has a final financial breakdown with a subtotal (the sum of all line items), applicable taxes, any discounts or fees, and the final amount due.
- Invoice notes: You can include an additional section where you list any additional details or considerations you want documented as part of the transaction.
Why sales invoices are important
Sales invoices are invaluable documents for the issuing business and the customer.
Why sales invoices matter for businesses
Sales invoices are an essential record of a sale, before a payment is received. They create a paper trail necessary for accurate financial reporting and tracking accounts receivable.
Beyond your recordkeeping, invoices act as legal documentation of a sale. This is crucial if there are any disputes or if you need to pursue payment through a collections process.
Come tax time, you can use invoices to track and report sales revenue for the year. If audited, you have documentation to support the sales you report.
More qualitatively, invoices show professional credibility. A sale that’s backed with a well-formatted, detailed invoice shows that your business is organized and serious about its operations.
Why sales invoices matter for customers
Buyers use invoices as both proof of purchase and a record of their payment obligations.
An accounts payable or finance team processes invoices, verifying that the charges match any contracts, purchase orders, or agreed-upon terms. If everything matches, they add the transaction to their records and prep the payment within the payment terms.
If there are any issues with the goods or services provided, the detailed breakdown of an invoice can be used to identify what was not delivered and what it was valued at.
Common types of sales invoices
“Sales invoice” is a term that encompasses different types of invoices used in specific sales processes. Here are a few types of sales invoices you may use in your operations.
Standard invoice
The most common type of sales invoices is the standard invoice.
Standard invoices are issued either when the transaction has been agreed upon or when the goods or services have been delivered. It acts as a formal request for payment, being the primary billing document in the transaction.
Pro forma invoice
A pro forma invoice is sent before a sale is finalized. Most importantly, it’s not a request for payment or formalization of a transaction.
Instead of formalizing a transaction, pro forma invoices act as a quote or mockup of what the cost of the order would be. For example, a landscaping company may send a pro forma invoice as a quote based on how long a job trimming the hedges may be.
Buyers often request pro forma invoices for budgeting purposes or to request approval for a purchase from the procurement team.
Recurring invoice
Recurring invoices are unique to ongoing services or subscriptions that are billed at regular intervals, typically monthly, quarterly, or annually.
Businesses often set up automated billing in these instances to reduce the manual labor required, streamlining their regular invoicing process.
Credit invoice
A credit invoice (or credit memo) is used to reduce or cancel a previously submitted invoice. In the case of a return, error, or discount, a credit invoice is issued to resolve the difference.
For example, a business may invoice its customer for an order of 1,000 units of inventory, only for a select few to be defective upon delivery. The business could then issue a credit memo for those defective units.
These documents are meant to adjust the balances for both the customer and the business in order to maintain accurate financial records without nullifying previous invoices.
How do sales invoices work?
The invoicing process typically begins when a transaction is agreed upon by both parties. The seller creates an invoice that documents the transaction details, with an itemized breakdown of what’s being purchased and the information of both parties involved.
The sales invoice serves an important purpose for the issuing business: it formalizes the deal and realizes revenue. If you use the accrual basis accounting method, sales revenue is recorded on the date of the invoice.
Once the customer receives the invoice, they review it for accuracy against a purchase order, contract, or agreed-upon terms. If valid, they submit it for payment with the finance team.
The seller keeps the invoice as a record of a request for payment, within the payment terms outlined on the invoice. This increases their accounts receivable balance.
If a payment is received, the seller closes out the invoice and reduces the accounts receivable balance by the payment amount. The accounts receivable process is ongoing until all payments are processed.
For both parties, sales invoices have all the necessary information to update their accounting. When an invoice is created, so too is a journal entry that updates both the sales revenue and accounts receivable on the financial reports. Or, for the buyer, the accounts payable and relevant expense category are updated.
This is why sales invoices are invaluable and essential to get right. If there are any issues with a sales invoice, it disrupts not just one, but many different accounting processes.
Steps to create a sales invoice
Ready to start issuing invoices? Simply follow our step-by-step guide to start requesting payments from customers.
- Gather the customer’s information: You’ll need the customer’s name, billing address, contact person, and contact information to include on the invoice.
- Add your billing information: You’ll similarly need the business name, address, phone, email, and tax information (if applicable).
- Add invoice information: The essentials of an invoice include the invoice number, invoice date, and payment terms or payment due date.
- Create the itemized breakdown: The itemized breakdown typically includes the item name, description, quantity, unit price, and line total (quantity times unit price).
- Adjust for taxes and discounts: Show the tax type, rate, and calculated total for each applicable tax. Discounts are most commonly applied before tax rates.
- Calculate the total billed amount: Tally up the amount for each line item, adding in the taxes and subtracting the discount for the total billed amount.
- Fill in optional notes: The notes section can be used to add a friendly note, refund policy, or any details you want to include for when you refer back to the invoice.
- Double-check your work: Before finalizing the invoice, check it against any records you have, such as a purchase order or previous conversation.
Once these steps are complete, you’re ready to send the invoice to the customer and update your recordkeeping. Update your accounts receivable balance and set reminders to follow up on payment requests.
Sales invoices best practices
Before you start drafting up your first sales invoice, get familiar with these best practices to do it with confidence.
Create invoices in a timely manner
Your customers can only start the accounts payable process once an invoice is received. This means that every day you don’t issue an invoice is another day you’ll go without being paid.
Take steps to streamline the invoicing process, like using templates or a specialized tool. For recurring customers, have a reminder set in your calendar to complete the process on the billing date.
Digitize your processes
Electronic invoices offer benefits throughout your operations.
These systems improve tracking and reporting by centralizing all the data needed in an accessible place. You’ll have one place to check for requested payments and outstanding amounts.
They also come with streamlined payment options for your customers, allowing them to pay through a centralized portal or on the invoice itself. This cuts down on payment times, ensuring you get your money faster and more reliably.
Keep copies of invoices for your records
Your invoices are an invaluable part of your recordkeeping. Each invoice serves as a formalized, legally binding agreement of sale, which can be used in your tax filing process or an audit (if necessary).
Sales invoices are also helpful in the case of a dispute. The itemized breakdown on an invoice makes it crystal clear what was purchased, at what unit price, and what the agreed-upon amount was.
You may not need to refer back to every invoice throughout your operations. But when you do, you’ll be grateful you kept them in a safe place.
Common mistakes to avoid when creating sales invoices
It’s tempting to try to rush through creating a sales invoice, but doing so puts you at risk of making one of these common mistakes.
Errors in pricing or calculations
Simple mathematical errors create friction in the sales process, which takes time to hash out and delays payment. At best, it’s a simple fix and slight delay, but in a worst-case scenario, you could damage your relationship with your customer.
To avoid the headache, always take the time to double-check your calculations and match the invoice against some other supporting document or conversation. If prices have changed, be sure to use the price at the point of the agreement unless communicated with the customer.
Having incomplete information
The details of an invoice are critical. Any mismatched info or lack of detail can lead to unwanted and burdensome disputes down the line.
A missing due date could leave your customers dragging their feet on payments. Vague item descriptions open the door to disputes on what was purchased, and any errors in customer or business information delay payment processes.
Every bit of detail you can include is invaluable as it protects you in the event of a dispute, audit, or missing payment.
Having late or forgotten invoices
The longer you wait to invoice a customer, the longer you’ll wait to get paid. This is one of the easiest aspects of invoicing within your control that can speed up payments and improve your cash flow.
Not only does a quick invoice help you get paid faster, but it also shows the professionalism and organization of your business. Having that sense of urgency in your own operations is expected in the work you do for your customers.
Late invoices also risk payment disputes, as a customer may not remember the conversation where you decided on quantities or unit prices. If you don’t have supporting documents, a fast invoice ensures nothing is forgotten or misremembered.
Sales invoice templates and tools
Mistakes on sales invoices are costly, potentially leading to disputes or late payments. But this doesn’t have to be a stressor.
With the use of templates or specialized software, you reduce manual inputs, so you’re less likely to make a mistake.
BILL offers a number of free sales invoice templates, including our:
- General invoice template
- Hourly invoice template
- Commercial invoice template
- Construction invoice template
- Freelance invoice template
- Itemized invoice template
Each of these templates has customizable formatting to reflect your brand’s identity. Plus, the built-in formulas ensure your math is correct without needing to break out the calculator.
Templates are great for saving time on generating invoices, but you may also want support with other administrative tasks, such as document matching, payment processing, customer follow-ups, or updating your accounting.
If this time comes, you’ll need to upgrade to a dedicated invoicing platform, like BILL. Our automations simplify the entire process, from creation to payment.
Our platform has built-in, customizable templates that are easy to tailor to your brand, making it easy to send an invoice as soon as you’re ready. Plus, you can schedule recurring invoices and reminders to keep your time freed up on net-new work.
Integrations with top accounting platforms like QuickBooks and Xero keep all your reports up-to-date, and customer-friendly payment options (like ACH, credit card, and virtual checks) make payments easy, with deposits directly into your bank account.
Reach out to schedule a demo and see BILL in action.
Frequently asked questions
Who provides the sales invoice?
It’s the responsibility of the seller to create and send the sales invoice to the buyer. Within a business, the responsibility is typically handled by an accounting department, an accounts payable specialist, or the salesperson responsible for the sale.
What must a sales invoice include?
To be a legally valid sales invoice, the following must be included:
- Unique invoice number
- Invoice date
- Seller’s business name and contact information
- Buyer’s name and contact information
- Line-by-line breakdown of goods or services provided, with a detailed description
- Quantities and prices
- Subtotal and total amount due
- Payment terms and due date
- Applicable tax information
Who pays a sales invoice?
The sales invoice is paid by the customer named on the invoice. This could be an individual, another business, or an organization. The purpose of including the customer's name and contact information on the invoice is to clearly identify who is responsible for fulfilling the payment obligation.
Can I use a sales invoice as proof of purchase?
Yes, a sales invoice can be used as a proof of purchase as it documents a sales transaction between a buyer and a seller. However, once a sales invoice has been paid, a receipt is typically provided, which may be requested as proof of payment in addition to the sales invoice as proof of purchase.
Is a sales invoice the same as an official receipt?
No, a sales invoice is not an official receipt. The sales invoice comes before a payment is made, with the official receipt only be provided after a payment has been made.
