What Is a Sales Invoice?
A sales invoice, also called a sales bill, is a document you send to your customers detailing the goods or services provided, the date of delivery, discounts issued, and the total amount owed. Most sales invoices also include the date when payment is due.
Creating a sales invoice is a wise financial choice as it helps track your business's cash flow and provides proof of services or goods sold. It also makes keeping records of your sales operations and business transactions easier.
What Is a Sales Invoice?
A sales invoice is a legally binding document that provides proof of goods and services sold to customers or purchasers. It records services rendered, goods sold, the amount owed, and payment details.
Other details included in the sales invoice are:
- Contact information: Names, phone numbers, email addresses, and physical addresses.
- Date: The invoice also includes the date it is created and the date it is sent to the customer.
- Services rendered: A sales invoice also itemizes services and goods offered, their price, and the total amount due.
- Due date: This is the timeframe for your customer to settle the invoice. Most businesses give 30 to 60 days. However, you should discuss a payment schedule that works for you and your customer before the sale to prevent late payment.
- Payment terms: A sales invoice should also include the terms and conditions of payment, accepted payment methods, and late fee policy. Some businesses send a formal contract outlining the goods or services agreed upon and a delivery timeline.
- Invoice number: All sales invoices should have numbers to differentiate multiple invoices issued to one customer and make tracking easier.
- Description of goods or services: A sales invoice's main body details goods and services provided to the customer. List each item individually with a brief description, including unit price and quantity.
- Amount due: To avoid confusion, always include the total amount owing and list individual costs of goods or services. Include discounts, prepayments, and applicable taxes.
Types of Sales Invoices
So, what are some of the common types of sales invoices? Let us find out:
1. Standard Invoice
A standard invoice is the simplest type of sales invoice, and vendors can use it for any transaction. It includes all the information outlined above and specific additions depending on the nature of your business.
2. Pro-forma Invoice
You send this sales document to your customers before goods and services are rendered. Compared to the typical sales invoice requesting immediate payment, a pro-forma invoice informs them what they should expect to pay upon delivery of goods and services.
3. Recurring Invoice
This document is used for customers who purchase goods and services regularly. Customers who receive recurring invoices often have a membership or subscription, for instance, internet, cellular, and software providers using recurrent billing systems.
4. Commercial Invoice
This invoice is used for international trade. It is more complex and includes customs valuation for goods crossing international borders. A commercial invoice details the country of origin, freight costs, and product weight.
Functions of Sales Invoices
A sales invoice provides the following:
- Written evidence of the number of goods and services sold.
- Information about the value of outstanding bills
- Proof of taxable goods and services sold following customers’ requests.
- Channel to file complaints if a customer is dissatisfied with the services provided.
- Reference document that lists goods and services sold to customers.
- Tracking tool detailing goods and services sold, transactions, and the amount involved.
- Valid evidence to report taxes.
- Legal documentation for missing payment
- Proof of demand for goods and services
Sales Invoice vs. Purchase Order
Most business owners confuse the sales invoice with a purchase order. The difference is that a purchase order is made before the transaction, while a sales invoice is issued after the sale.
A purchase order records your customer’s order, while a sales invoice records the receipt of goods or services and payment terms.
Most businesses use purchase orders in the approval process. Some companies require a purchase order for goods or services over a certain amount.
Sales Invoice vs. Bill
Most businesses use sales invoices and bills interchangeably. However, an invoice and bill contain different information.
An invoice is a legal document used for accounting and tax. Invoices are also descriptive and include details about the vendor, supplier, or buyer.
Bills do not detail customer information and can be issued without an invoice. Billing documents are also commonly used in retail transactions with the expectation of immediate payment. All bills are not invoices, but an invoice is a specific type of bill with future payment terms.
How Does a Sales Invoice Work?
A business creates an invoice after the delivery of goods or services. The invoice will typically contain details of the goods and services provided, payment expectations, and other information about the transaction.
An invoice ensures both parties know when payment is due, even if the business does not have set terms. It also provides proper dating, which is essential for bookkeeping.
Your invoice should contain the full names of both parties involved. If you use accounting software to create your invoice, you need the customer’s email and physical address.
A detailed invoice ensures everything is clear. You may also include previous document numbers related to the sale, such as purchase orders, sales, agreements, or estimates. Use invoicing software to generate billings for customers.
To ensure accurate payment, apply all deposits and discounts to the invoice and clearly state your sales terms. Terms of sale may include ‘net 30’ or ‘net 60’, meaning payment is due within 30 days or 60 days, respectively.
Summary
An efficient invoicing process can strengthen customer relationships and boost your cash flow. Use clear sales invoice template and ensure your customers receive them promptly. You can also use small business invoicing software to simplify the process and minimize errors.
By prioritizing the buyer’s convenience, you can significantly improve their experience and get paid sooner.
