One of the first things that you learn to do as a business owner is “How to Invoice your clients”. If you don’t, you will soon go out of business! We have put together a simple step-step guide on this together with some tips on getting paid faster! This is step one which talks about the components of an invoice and what the ATO requires on each one that you raise. Get your invoicing wrong and you could be in a whole world of angst.
What is an invoice?
In simple terms, an invoice is a request for payment in exchange for work that you have done or agreed to do. It lists the goods or services you’ve supplied to your customer, and what they owe you for the supply of those products or services.
Important to remember that your invoices are also tax documents. It is a legal requirement as determined by the ATO that you are required to keep copies to show what revenue you earned. This also tells the ATO the amount of tax you have collected on each sale. This element of the invoice is not your money – you are holding it in trust, if you like, for the ATO.
Why are invoices so important?
Invoices are your request for payment. That means that you need to ensure that they are correct with the right information. If you make a mistake, a customer may refuse to pay. That is unnecessary and will cause embarrassment and frustration for you and for them.
As mentioned above, your Invoices are also tax documents. If they don’t comply with ATO requirements you could get yourself into a lot of trouble.
What should you include on every invoice?
There are a few things that, legally, your invoices must include. They need to include details about you, the supplier and details about the person or business that has purchased from you. You must also include details about the goods or services that were exchanged. Here’s a better breakdown on that:
- your company name, address, ABN and an invoice number
- your customer’s details including a name and address
- details of the goods or service you provided and the cost of those
- instructions on how and when to pay
If you collected GST on the sale, then you also need to show how much that was.
Detail your payment due date and payment terms
For a business owner, the main intent of raising an invoice is to make sure you get paid, right? So you need to tell your purchaser when payment is due, and how to send the money. It is wise to include information like:
- The amount of any deposit required.
- The due date: How many days (from the invoice date) the customer has to pay and the date when payment is due.
- Discount or late fees: The amount of any on-time discounts or late fees that are chargeable.
- How the client should pay you. Different businesses accept different forms of payment so you need to detail yours. The methods of payment you offer might include:
- internet banking,
- credit card,
You should always include your bank account number or a link so customers can pay online using EFT.
Write your payment terms in plain English on your invoice and make it clear how you prefer to get paid. If you make it easy you stand a better chance of getting paid on time.
Some tips for Business 2 Business invoices:
- Check you’ve used the legal name of the business you’re billing and the correct ABN. This may be different from the trading name that you’re familiar with. If you are unsure, ask them.
- Don’t automatically send the invoice to the person who placed the order or hired you. There may be an accounts payable department. This is worth asking at the beginning of your business relationship.
- While you are confirming all the accounts stuff, it is worth asking if they have a purchase order number for you to include on the invoice. This is especially true if you are working with a larger business. Getting it retrospectively is hard so get it upfront!
- If you’re GST registered, include the words ‘Tax invoice’ where your client will see it.
Our recommendation is that you set up an email address that relates only to invoicing and accounting. Maybe use ‘[email protected]’ and send all your invoices from that email. Our experience is that it is less likely to get buried with everything else that is coming in.
Are there different types of invoices?
What we looked at above was a basic invoice. There are other types of invoices to be aware of:
- Sales invoice – The name given to an invoice you have sent is a sales invoice.
- Purchase Invoice – One asking you for payment is called a purchase invoice.
- Tax invoice – invoices that include GST may also be called tax invoices. GST-registered businesses must send tax invoices and collect the tax due for payment to the ATO at a later date.
- Interim invoice – if you have agreed on staged on a big piece of work, you could send more than one interim invoice.
- Final invoice – the last in a series of interim invoices. This is the final invoice and signals that the work is complete and that no other invoices will follow.
- Recurring invoice – if you charge your customer the same amount every time, you can just send a recurring invoice. These are great for subscriptions or leases.
- Credit memo or credit note – these reverse a charge from a previous invoice. They’re issued when goods are returned or when a customer was overcharged for whatever reason.
So, there really is more to invoicing than you might initially think. It’s a process that starts when you take on a job and progresses through to the completion of that project. It only finishes when the money comes in the door. There are a number of steps along the way.
Over the next few months, we will bring those steeps to you in order that we can help you get your invoicing right. the first time, every time! If you would rather an expert bookkeeper take over this function in your business then give and the team at Keeping Numbers a call. Experienced and well-established they work with businesses from all industries. If you would like to have a conversation about your needs, then email Liz here. She would love to have a chat.