An invoice is a document that itemizes and records a transaction between the seller—you—and your customer.
Invoices create an agreement between you and your customer and make sure you get paid for the products you sell. Each invoice outlines the products and amounts you sold, when, for what prices, and when payment is due.
This guide shows you what invoices are, why you need them, what to include in your invoices, and how to make the invoicing process simple and streamlined.
What is an invoice?
An invoice itemizes and records each transaction between your business and your customers. It confirms and logs the products a customer bought and the amount they have agreed to pay for those products.
Invoices are the backbone of your cash flow, inventory tracking, and business accounting.
They’re also practical because they contain all the important information about a sale on a single page:
- Products you sold and their individual cost
- Total amount and sales tax
- Your and customer’s information
- Payment terms
- Delivery details
What is the purpose of an invoice?
Request timely payment and track sales
Invoices enable you to get paid—plain and simple. They outline your payment terms (like on receipt or by the end of the month), which helps you predict your cash flow and plan activities and expenses around it.
Invoices also allow you to track sales, including the exact products and amounts sold, as well as the number of sales you made in a given period. This is useful for understanding the impact of your marketing activities on your sales, as well as planning for the next period.
Invoices play a vital role in your bookkeeping. They help you keep track of your store’s revenue for tax purposes, as each invoice is a tax document.
You need to store the invoices you issue to show the revenue your business earned, as well as the sales tax you collected, based on the state or country of the customer you invoiced.
Read more :
Business data and analytics
When you keep detailed track of the products you sell, you can better forecast demand for your store for specific seasons or based on yearly trends. When you know what’s coming, you can better prepare your store’s layout, promotions, and staff schedules.
This also means you can track and adjust your inventory to improve cash flow and avoid overstocking or running out of a popular product.
💡 PRO TIP: Set reorder points in Shopify admin to get low stock notifications and ensure you have enough lead time to replenish a product’s inventory before quantities reach zero.
How invoices differ from bills and purchase orders
You may have come across other terms for records of business transactions, including a bill and a purchase order. Here’s how they differ from an invoice.
Invoice vs. bill
An invoice acts as a request for future payment. When you issue an invoice, a customer pays you in the days or weeks to follow.
A bill records a sale that the customer pays right away. Unlike an invoice, which often has detailed payment terms and other information, a bill is a simple statement of what’s due for payment now.
Invoice vs. purchase order
You issue an invoice when you’ve sold a product and want to request a payment. A purchase order works the other way around; it details the items a buyer wants to purchase at a certain price point.
As a business, you’d issue a purchase order when ordering large product quantities from a supplier. This establishes an approval process in your company and defines the price and scheduled delivery of an order.
You could also receive a purchase order containing the same information from a buyer if they’re making a large order from you.
Read more :
What’s included in an invoice?
Your invoice format will depend on your bookkeeping needs, your local regulations, and the type of store you run.
Here are the elements you should keep in mind when creating your invoice template:
1. Invoice terminology
First, make sure you include the word “invoice” at the top of the document. Make it easy to see and impossible to confuse with a different document, like a purchase order or a credit note.
This is not only for practical reasons, it’s a legal obligation for businesses in most countries.
2. A unique invoice number
Each invoice should have its own unique number, and your bookkeeping system should keep a record of the numbers used. Your customers will use your invoice numbers to keep track of payments on their end.
Assign numbers to invoices sequentially, starting from the lowest (1 or 0001, for example) and assigning the next number to each invoice that follows.
You can also use letters in your unique invoice number to facilitate categorization and clarity.
3. Your company information
Every invoice needs your business information on it: company name, address, phone number, and email address. Include your VAT ID if you have one and it’s applicable to the transaction. This should be positioned at the top of the invoice.
These details also help your customer keep correct information on file.
4. Customer information
Customer information also goes at the top of your invoice and reflects the format of your company information. Include customer’s name, billing address, shipping address (if different than billing address), phone number, and email address.
5. Invoice date
Invoice creation date is crucial. It usually determines the due date, and indicates if the invoice is overdue and needs your follow-up.
6. Names and descriptions of products sold
This is the main part of your invoice as it makes up the total amount due and indicates the products your customer ordered from you.
Each unique type of product—for example, a combination of a selected color and size—gets its own line in the invoice. Each line item should also have these columns:
- Description. Add a short product description and/or the product’s SKU number.
- Quantity. Specify how many units of a product the customer ordered.
- Unit price. The price of a single unit of a product.
- Line total. Unit price multiplied by the quantity.
Read more :
7. Sales tax
Sales tax depends on your state and the types of products you sell as a retail business. Once you determine whether you need to charge for sales tax and how much, you need to include it in your invoice.
Here’s a regularly updated table with sales tax rates per state.
8. Total amount due
This number should stand out from the rest of the information on your invoice—it’s the most important piece of information for your customer, and a reason you’re issuing an invoice in the first place.
Add up your line totals into a subtotal amount. If you don’t charge sales tax or VAT, this is also your total amount due.
If you need to charge sales tax, indicate the sales tax rate you’re charging, multiply the subtotal by the sales tax rate, and add the result to the total due.
- Subtotal: $100
- Sales tax rate: 7%
$100 x .07 = $7 → The sales tax amount for this invoice
$100 + $7 = $107 → The total amount of this invoice (subtotal + sales tax amount)
9. Terms of payment
Be explicit about your payment terms in the invoice. This removes any guesswork or unspoken expectations of your customers.
Here are some common terms of payment you can use:
- Net X. Payment within X days from invoice date. These are most often Net 7, Net 30, Net 60, and Net 90. Customers will often wait until this date to make their payment.
- Payment in advance (PIA). Payment in full before you fulfil their order and complete the work.
- Cash in advance (CIA). Similar to PIA, but the payment is made in cash before you fulfil the order and complete the work.
- Upon receipt. You expect payment when the customer receives the invoice, usually the next business day.
- End of month (EOM). Payment by the end of the same calendar month the invoice was issued in.
- 15th of month following invoice (15MFI). Payment by the 15th of the month after the invoice date.
- 50% upfront. You ask for 50% of the total invoice amount before you fulfil the order and complete the work. This is usually used for larger orders and projects.
10. Payment details
Outlining payment details is a great way to make paying your invoices easier. Nearly 50% of customers who can’t use their preferred method of payment will abandon a purchase, so this section of your invoice is worth setting up and making flexible.
Read more :
11. Shipping terms
Finally, include your shipping terms, including who’s responsible for the shipping costs.
Include details about the method of shipping, expected delivery date, and tracking information.
Types of invoices
Pro forma invoice
A pro forma invoice shows the price of goods and records the commitment of the seller to deliver the goods. It’s issued in advance and allows the buyer to plan for the purchase, as well as to calculate customs fees before buying.
Timesheet invoices are issued to charge for work done on an hourly basis. It includes the number of hours worked and the hourly fee to make up the total invoice amount.
A credit invoice is issued when you need to give a customer a refund or a discount, usually when customers make a return. It’s also called a credit note or credit memo. This invoice reverses a charge from a previous invoice.
A debit invoice notifies the buyer of their current debt obligations. It’s also called a debit note. It’s issued when you need to increase the amount a customer owes you. For example, they ordered a product and received an invoice from you, but later changed their order to a higher amount.
Commercial invoices are crucial for international sales. They’re used for customs declaration and customs fee calculation when products are exported across international borders.
A commercial invoice needs to outline full contact details of both the seller and the buyer, contents of the package and their value, size, and weight, country of origin, the reason for export, order date, and sender’s signature.
Interim invoices are issued for milestones during larger projects. They act as progress payments and allow both the seller and the buyer to better manage their cash flow.
Past due invoice
A past due invoice is an invoice that hasn’t been paid on time. Overdue invoices can have a huge negative impact on your cash flow and, as a result, your business—i.e. your ability to pay your staff, rent, and suppliers.
Read more :
Retainer invoices are issued to collect advance payments for products or services. It’s a form of invoicing for a deposit, allowing you to confirm a commitment from a customer.
Tips for writing invoices
Follow these tips to make sure your invoices are easy to understand and get paid quickly.
Presentation tips for a clear invoice
Your invoice should be limited to one page; the only exception is if the order has a long list of items that wouldn’t fit on a single page. One page is plenty for all the company and customer details, as well as product details and payment/shipping terms.
Make sure all the text is easy to read. Font size shouldn’t be too small, and black text on white background works best for clarity and legibility.
Your item names and descriptions should be easy for customers to recognize and tie to the products they ordered.
Invoices are a hidden opportunity to strengthen their brand, and many successful businesses put this to great use. Consider pairing function with style to create beautiful, on-brand documents that become an enjoyable part of the unboxing experience. Include your company logo, the fonts you use on your product packaging and website and make sure all the colors match your usual palette.
Incentivize on-time or early payment
Customers sometimes need a push to pay the invoice on time. If you want to incentivize quick payments, here are some models that will help you do that:
- Pay on time, avoid late fees. Make it clear to your customers that paying after your invoice is due comes with a late fee (often around 5%).
- Pay early, get a discount. You can set up Net 30 payment terms, but reward clients that pay you within 10 days by giving a 2% discount. This example is called a 2/10 Net 30 payment term.
Automate whenever possible
Make invoicing straightforward and easy by removing as much manual work as you can from the process.
Here are a few ways to automate your invoicing:
- Use templates. When you set up an invoicing system, create an invoice you can duplicate and reuse to minimize repetitive work—and the chances of making a mistake. Our invoice generator is a great tool for this.
- Recurring invoices. Look for opportunities to issue recurring invoices for repeat transactions. There’s no need to keep creating an identical invoice every time.
- Automatically generate invoices. Set up an automated system that can be triggered by a new order. Many of the Shopify apps make this easy and completely hands-off.
- Automate invoice follow-up. Don’t let an invoice sit unpaid after it’s due. Follow up regularly until it’s paid—many tools will let you set up automatic reminders, but you can also schedule a regular review of invoices to avoid having to remember.
Read more :
Make payment convenient
As we mentioned in the payment details section, having flexible payment terms and methods pays off. From online payments to paying in installments, customers will appreciate the ability to choose from a range of options.
Consider these payment methods:
- Cash. It’s easy, convenient, and has no fees. Some customers prefer it, including those who pick up their online purchases in-store.
- Credit and debit cards. Many customers only use cards to pay for products and services, and card payments are in your account instantly.
- Mobile and smartphone payments. Fast and practical.
- PayPal. Straightforward and quickly deposited into your account.
- Bank transfers. Customers can pay when convenient for them without having to carry cash.
- Installments. Let customers pay their order in multiple installments instead of all at once.
Here’s an invoice example with all the key elements and design tips mentioned above:
Start writing your own invoices
Whether you’re gearing up to issue your first invoice or your 100th, use these tips to make invoicing a breeze, make payments simple for your customers, and get paid on time.
Using a commerce platform that helps you keep track of all your sales, invoices, and payments will help you simplify your financials. Shopify POS lets you do all of this and more, and works whether you sell online, in store, or both.
Issue invoices in just a few clicks, right on the spot, with Shopify’s invoice generator (it’s free!). Enter all the details to generate and send professional, beautiful, clean invoices.
Article sources ” https://www.shopify.com/retail/retail-invoice-guide