An invoice is a professional document that outlines the products and services your business provides to its clients. An invoice establishes the client’s obligation to pay the company the agreed upon amount for those goods or services.  Invoicing is an important task for small businesses, because invoices allow your company to request and receive payment for your work.

Invoices provide crucial documentation, both for the business doing the billing and the client that receives the invoice. Professional invoices help businesses get paid faster for their work, as they give a clear notice of how much money is owed and when the payment is due. Invoices give clients a useful record of their expenses with an itemized list of costs and payment deadlines, which are important for recordkeeping.

Still asking ‘What is an invoice?’

Explore these topics to learn what an invoice is so you can get started making professional invoices for your business:

What Is the Definition of Invoice?

The term invoice is defined by the Cambridge English Dictionary as: “a statement listing goods or services provided and their prices, used in business as a record of sale.” 

Invoices serve as the central business document for a business’s accounting system and processes. Invoices inform clients how much money they owe, a detailed list of the services provided and a deadline for the payment to be submitted. Both business owners and their clients keep invoices as an important record of sale. 

What Is an Invoice Used For?

Invoices are used by both businesses and their customers as record-keeping documents for business accounting. Invoices help to track all the sales transactions that occur between a business and its customers. Business use invoices for a range of purposes, which include:  

  • To request prompt payment from customers for services rendered
  • To track sales totals and earnings
  • To monitor inventory for businesses that sell goods to customers 
  • To provide useful historical sales data and to help  forecast future sales 
  • To keep track of all business revenue for future tax filings

What’s the Proper Invoice Format?

It’s important that you use the right formatting when creating an invoice, so that your document includes all the crucial information clients need to pay you, and so that the information is displayed clearly. Here is the proper formatting for a professional invoice:

  • Your business information appears at the top of the invoice in the header, including your business name, logo and contact details. 
  • Next on your invoice, include your client’s billing details below your business information. 
  • Beside the customer billing information, add a unique invoice number, the date of issue and the payment due date. 
  • Add the total amount due on the invoice in a large, bold font toward the top of your invoice, so the client can see at a glance what they owe you. 
  • Include an itemized list of the services provided, with a brief description of each service, the cost, quantity or hours, and a subtotal amount. 
  • Include the total amount due at the bottom of the invoice and be sure to include all relevant taxes. 

What Is an Invoice ID? 

An invoice ID is also referred to as the invoice number. Simply put, the invoice ID is a unique number that a business assigns to each invoice it creates and sends to clients. Your invoice ID numbers are a crucial part of every invoice you make, because they let you and your client quickly and easily identify or refer to an individual invoice. 

An invoice ID can be made up of numbers, letters or a combination of the two. Although your invoices aren’t required to be numbered sequentially, it’s easiest to choose a consistent numbering system so that you never assign the same ID to multiple invoices. 

How to Assign Invoice Numbers

When it comes to assigning invoice IDs to your bills, there are a lot of options for how to do it. The following are some of the easiest and most common ways of assigning invoice numbers:

Sequentially 

The most basic way of assigning invoices is to do so sequentially. If you use a cloud-based invoicing solution, it likely will automatically generate sequential invoice numbers. To assign invoice IDs sequentially, you simply start with a number (typically #1) and assign each invoice that follows the next in the sequence. Here’s what that would look like: 

Invoice # 001

Invoice #002

Invoice #003

Sequential invoice numbers are the most popular method, because it’s easy to stay consistent. 

Chronologically

To assign invoice numbers chronologically, you need to file your invoices based on the date they’re created. The first series of numbers in a chronological invoice number begins with the date. After that, the invoice ID will include a unique number. You can choose any formatting for the dates and for the following set of digits. For example, if an invoice is created on September 1, 2019 and the unique invoice number is 001, you could assign this number to the invoice: 2019-09-01-001.    

Using a Customer ID 

If your business chooses to assign unique customer IDs to each of your clients, you can also use that customer ID to number your invoices. To assign invoice numbers by customer ID, you will need to follow a similar process to the one outlined above for chronological numbering. The invoice ID will begin with the customer ID number and then you will choose a unique number to follow it. For example, if you have a client with a customer ID of 222 and you would like to use 002 as your unique number, you could then create an invoice number using the customer ID that would be 222-002. 

Using a Project ID

If your business works on enough different projects at a time that it creates project ID numbers for each of your ongoing projects, you can use the project ID to assign an invoice number. This is a common approach in the construction industry, when different teams are often working on a number of work sites at the same time. When assigning invoice numbers by project ID, the first part of your invoice number refers to the project ID and the second part is a unique sequential number so you can differentiate between the various invoices for each individual project. For example, if you are making an invoice for project 112, you can assign your first invoice number for the project as 112-001.  

How Do I Invoice Clients?

The best way to invoice clients is to create and send your invoices as soon as you complete the scope of work for the client project. When you invoice clients right away, all the project details are fresh in your mind so you are less likely to forget anything and leave it off the invoice. The project will also still be top of mind with the customer, so you’re more likely to get paid promptly for your work. To invoice clients, be sure to invoice all the relevant details a client will need to know to process the payment, such as your business name and contact details, the payment due date and the total amount owing for the work.