What is an invoice?
We have all heard of the term “Invoice” and “Receipt”. Many of us tend to confuse the two or believe they are one and the same. But they are actually different documents. An invoice is a request for payment given by the vendor to the purchaser. Whereas a receipt is the acknowledgment of the payment being received by the seller. The receipt is given after the payment is made and the invoice is given before the payment is made.
Invoices are very important as they also act as proof of the revenue you earned for calculating tax. We will be talking about the different types of invoices in this article.
What must an invoice contain?
First, let’s learn what information must be included in an invoice. These are the details that must be included in an invoice:
- The company name, address and the invoice number
- the customer’s name and address
- details of the goods or service provided and the total cost
- instructions on how and when to pay
There are many different types of invoices, below we discuss these various invoice types.
What types of the invoice are there in the UK?
It is the invoice received by the buyer.
This invoice is one and the same as the purchase invoice but called a sales invoice on the seller’s end.
This type of invoice is sent by tax registered companies. The amount of VAT is included in this invoice.
Past due invoice
This invoice is made and sent to the purchaser when the payment is not made within the deadline.
These invoices are made for services or goods that are provided over a long period of time. Interim invoices might be sent monthly to the buyer to receive payment for monthly charges.
This invoice is the last invoice given when a service or goods provided over a long term is complete. It indicates no more invoices will be forthcoming for this good or service.
This invoice is used when the same amount is charged over a long period of time such as subscriptions and leases.
Pro forma invoice
This type of invoice is usually a calculation of the costs to be incurred by the buyer and not a legal document of the purchase. This invoice is made to allow the buyer to calculate the customs cost of a shipment of goods.
This is the legal version of the pro forma invoice when the sales are official and the transaction is final. The price for goods cannot be changed on the invoice until it expires.
Credit memo or credit note
When a buyer is overcharged or the goods are returned then this invoice is given with the updated and changed amounts included.
Even though invoices are legally binding and contain a deadline for payments to be made, almost half of the payments are not made within that date. This is why it is best to follow these guidelines:
- Don’t give too long of a time period for the payment to be made, depending on the amount and quantity of goods brought to give a minimum of 7 days credit period or a max of 2 months credit period.
- Immediately follow up on overdue payments.
- Don’t wait too long to send an invoice after the transaction is final or complete.