What is an Invoice? 8 Types of Invoice, Elements of Invoice

By
Joanna Okedara
Table of Contents
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    Business invoices are important because they track B2C, O2O, and B2B payments and transactions. Invoicing makes it easy for business owners to request payment from clients. 

    For a business to be successful, there is a need to be on top of all invoice management processes. When done correctly, invoices can mean the difference between getting paid on time and running at a loss.

    Key Takeaway - All kinds of businesses receive and send invoices. Businesses like B2B eCommerce businesses, wholesale distributorship businesses, subscription billing businesses, and D2C businesses, use invoices to simplify payment processing and order management.

    Invoice processing is part of the billing processes of any business. Before you can fully optimize your billing processes it is important to understand what is an invoice and the purpose of an invoice.

    This article will explain what is an invoice, its uses, and the elements of an invoice. Let’s get to it then.

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    What is an Invoice?

    An invoice is a billing document that is issued by a seller to demand payment for goods or services from a buyer. Invoices usually itemize and track payment transactions.

    Normally, an invoice includes the costs of goods purchased or services rendered. Businesses send invoices after such goods or services have been delivered. For instance, a food distribution business can create invoices for delivering restaurant supplies to a restaurant business.

    This invoice may list the cost of wholesale items such as wholesale meat, wholesale coffee beans, wholesale baking supplies, and other wholesale restaurant equipment. Sending this billing information to the restaurant business will serve as legal proof of agreed payment terms.

    Besides these, invoices can also help with inventory tracking. A great invoice management system can integrate with your warehouse inventory management software and keep track of SKU numbers and excess inventory.

    Usually, businesses use an invoice-making tool to generate invoices for their customers. You can also create a brand invoice template that shows your logo and business name.

    Knowing what is an invoice is the first step to understanding how to integrate invoices with the rest of your billing processes. Before we review the benefits and purpose of an invoice, let’s discuss what is an invoice payment.

    What is an Invoice Payment?

    Invoice payment is a payment a customer makes after receiving an invoice from a business. It is usually a payment for goods or services received.

    Most times invoice payments are set on a recurring billing cycle. Businesses that use automatic billing systems, subscription management software, and recurring billing management systems can implement automatic invoice payment features for customers.

    This means that after a customer subscribes to a recurring payments service, an invoice will be sent automatically at the end of a billing cycle. In return, the customer makes an invoice payment for the next billing cycle.

    Having an efficient invoice payment process will limit the risks of incurring late payments. Simple invoicing software for small businesses like BlueCart can solve this problem.

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    What is an Invoice Used for? Top 5 Benefits of Invoices

    So, what is an invoice used for? The primary purpose of an invoice is to request payment for services provided or goods purchased. However, an invoice can do more than just simplify payment transactions.

    What is the purpose of an invoice? Let’s find out.

    1. Bookkeeping

    Invoices keep records of sales and purchases. It can serve as a useful bookkeeping resource. Invoices can also provide information about the financial history of a business. Businesses can use this information to keep track of monthly recurring revenue and cash flow.

    1. Inventory Tracking

    Sales invoices can help you keep track of the amount of inventory you have in your warehouse. With adequate data and the right invoicing and inventory management tool, you may be able to forecast supply needs based on past sales records.

    1. Business Analytics and Marketing

    Invoices provide records and eCommerce metrics of customers’ buying behavior, patterns, peak times, and high demand products. Analyzing this information can help you create the perfect eCommerce marketing strategies to reach your target niche market.

    1. Legal Protection

    Invoices can protect a business from lawsuits and fraudulent buyers. Although an invoice is not a legal document, it can serve as legal proof of agreed payment terms between a buyer and seller. 

    1. Tax Recording

    Sales invoices can help track the information that businesses list on their annual tax filings. With the right invoice management software, businesses can provide IRS with the required audit data and financial reports.

    What is on an Invoice? Top 11 Elements of an Invoice

    What is on an invoice? That’s a great question.

    Let’s look at the top eleven elements of an invoice:

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    1. Invoice number
    2. Date of service rendered or goods purchased
    3. Date of sending the invoice
    4. Name and contact details of the buyer
    5. Contact and name of business/seller
    6. Terms and conditions
    7. Product or service description
    8. Cost per product or service unit
    9. Tax rates
    10. Total amount to be paid
    11. Personalized note

    What are the Types of Invoices? Top 8 Types of Invoices

    There are various types of invoices that businesses can send. Depending on the due date, project stage, PCI compliance requirements, industry, and regional standards, businesses can send a variety of invoices to customers.

    Here are eight types of invoices you can send to your customers:

    1. Proforma Invoice: This is the estimated invoice sent to a customer before delivering the goods and services. A proforma invoice usually contains the estimated cost of goods, expected delivery date, and other information about the goods or services. It is usually sent for a one-time transaction.
    2. Sales Invoice: This is the regular invoice that businesses send to customers to request payment. It contains all the elements of an invoice and the necessary information that the customer needs to make a payment.
    3. Overdue Invoice: This invoice is sent when a payment is past due. An overdue invoice is issued to the customer when there is a failure to make payment at the stipulated time.
    4. Consolidate Invoice: This invoice groups multiple invoices under the same customer’s name into a single invoice with one total. Consolidated invoices make it possible for the customer to pay at once for multiple invoices.
    5. Retainer Invoice: This invoice is sent to a customer to request prepayments for services yet to be rendered or goods yet to be delivered. Retainer invoices are usually sent for ongoing projects and serve as advance payments for logistics or capital
    6. Timesheet Invoice: this type of invoice is issued to customers to request payment for the amount of time spent on a project. Timesheet invoices are sent for services rendered and are calculated by multiplying the hours each employee spent working on a project with the agreed per-hour charge.
    7. Commercial Invoice: This type of invoice is sent as proof of international transactions between a buyer and a seller for legal purposes. It is primarily used to determine taxes, request customs clearance for goods shipped in and out of the country, and calculate tariffs.
    8. Recurring Invoice: A recurring invoice is sent repeatedly to request payment for goods or services delivered recurrently. This type of invoice is usually used by businesses that operate a subscription model.
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    Frequently Asked Questions About What is an Invoice

    Invoicing is an important part of the billing process of any business as it can speed up payments for goods and services. Let’s answer some simple questions about invoicing.

    What is the Difference Between an Invoice and a Receipt?

    In simple terms, an invoice is sent to request payment while a receipt is sent as proof of payment. An invoice is a document that is sent to a customer to request payment for goods or services delivered. On the other hand, a receipt is a document issued after payment has been made for goods or services by a customer.

    What is Invoice Processing?

    Invoice processing is the way an incoming invoice is handled from when it is received till when payment is made. It involves the complete cycle of receiving an invoice, approving it, choosing a payment date, paying the invoice, and recording the payment. 

    Is an Invoice a Proof of Purchase?

    Yes, invoices can be proof of purchase or an agreement to purchase a good or service. However, it is not proof of payment.

    Here’s The Proof You Need

    Invoices are very important to the success of your business. Whether you are sending one to a customer or receiving one from another business, an invoice can keep track of your cash flow. It can also be useful in protecting your business from a lawsuit.

    It is important to invest in the right invoice and inventory management software, like BlueCart. This will save you time and cost.

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