What is an Invoice and Why it is Important For Your Business?

What is an Invoice?

Invoicing is an important part of any small and larger business whether you’re working for yourself or a corporation. If you want to get paid, you’ve got to know what an invoice is and how to use it.

So what is an Invoice?

A normal business transaction involves two parties, a buyer and a seller. The seller provides Goods or Service to the buyer and in return, they want to get paid. This is a transaction so that’s the whole point. So the buyer owes money to the seller, but how much exactly? And what specifically are they are paying for? And how long do they have to make the payment?

To answer all of the above questions, the seller sends them an invoice which sets out all of this information.

So the buyer knows what they owe, they’ve got an itemized list of all goods and services that they’re paying for. And they know the terms of the transaction. Therefore, they send the money to the supplier and the transaction is complete.

Are Invoices and Sale Receipts Same Thing?

The short answer is No. However, this is confusing because there are a few similarities. Both serve as evidence of a transaction. And both are produced by the seller and are given to the buyer.

However, the key difference is that an invoice is a request for payment, so it is issued before the payment has been made. Whereas a Receipt, that’s issued after.

Why Invoice Is Important For Your Business?

1. Proof of Sales

Invoices are the official proofs that the sales have happened. It specifies what, when, how many, and whom it was sold.

2. Track Payments

You can set the payment terms, tracks the outstanding amount and also send payment reminders accordingly.

3. Maintain Records

When you raise invoices, you inadvertently end up maintaining a record of all the sales that are happening in your business.

4. Analyze Business Trends

With the data of your sales, you can draw up your customers buying trends, pick seasons, top-selling products and much more to divide business strategies that can boost your sales.

5. Easy Tax Filling

Most important of all invoices are an invaluable resource for accounting. It helps you keep track of payments and dues and file you attach return easily.

Component Of Invoice

As mentioned earlier, invoices are proofs that any sales have happened and it contained the following elements in order to qualify as a legal document.

Invoice sample
  1. The word Invoice should be prominent and there should be a unique invoice number for each invoiced which is separated from the raised.
  2. Followed by the date on which the date is raised.
  3. Payment terms and due date should be given.
  4. Name and seller address must be specified so that the customer can reach out in case of any queries.
  5. Name of the customer along with the billing address and shipping address.
  6. The detail of the items being sold such as Name, Quantity, Rate, and Amount.
  7. Subtotal
  8. The tax that is levied on the items.
  9. The Total Invoice amount.
  10. Balance due.
  11. Terms and Condition.
  12. Authorized Signature.

Benefits of Using Modern Invoicing Software

We all know that invoicing is no easy job. Even the number of invoices is being raised is few. Doing it manually is very difficult. When the quantity is huge, it becomes a tedious task. While desktop software helps you raise the invoices in less time. It falls short when it comes to data backup, storage, accessibility, automation, etc. In this section, we will see the benefits that the cloud invoicing software offers.

  • Save Time: You can’t afford to lose time on raising scores of invoicing manually. With the cloud invoicing solution and place, you can raise invoices and send it to your client at no time.
  • Create a Customised Invoices: Online software give you the freedom to customize your invoices according to your needs. You can choose from a wide range of templates and craft it to suit your requirement.
  • Get Paid Faster: Most of the cloud invoicing software is integrated with the online payment gateways. So all you need to do it is set up an account anyone of them and the payment link will be sent along with the invoice. Thus making it easy for your customer to pay you then and there and for you too to receive payment faster.
  • Improve Customer Relation: Imagine the specially designed for your customer where they can keep track of the transaction, payments and give you reviews. Cloud invoicing solution have a client portal feature that can take your customer relations to the whole new level.
  • Secure Payment: When collecting online payments, security is very important. Cloud invoicing software comes with PCI DSS compliance that makes receiving and making payments very secure.
  • Invoicing on the go: Stock a business deal when you’re traveling. Well, you need it to wait to reach your office to raise the invoice. Many invoicing solutions have a mobile application with which you can raise invoices even while you away.
  • Eternal Backup: You can’t be the cloud when it comes to this. Since your data are stored on the cloud and it secures databases. You need not worry about losing your data if your system crashes. It safe, secure, and you can access it from any place that has a decent internet connection.
  • Automation: With the online invoicing solution and place, you can reduce the dependency on manual labor in many places. For example, you can set the recurring schedule for an invoice and it will be created automatically on that particular date by the software. You can even set automatic payment reminders for your overdue invoices.
  • Business Insights: A few pieces of data such as your tax liability or how much your customer owes you can all be dealing from the single invoice. However, it is an online system and you can generate reports and see how well your business is doing in a matter of minutes.
  • Cost-Effective: Although online invoicing software does cost your few bucks. In the long run, the cost of printing invoices and sending the hard copy will be much more especially if your volume is high. The E-invoice earn the other hand but no extra cost besides the initial subscription.

The Best Tips Of Invoicing

  • Aesthetic: It imperative that your invoices are visually appealing. Diligent uses of colors are very crucial. For example, a red unpaid stamp on reminder invoice will bring attention to the outstanding amount. However, this the same regular invoice might seem a bit rude.
  • Clear Description: Give a clear description of the product or service being offered. The weak description often leads to a bad impression on about your business. Also, avoid any hidden charges as this can put off your customers.
  • Outstanding Payment: How much your client owes on the current invoices is important. But if also have overdue invoices then it good to let them know that. Giving a consolidated total of how much they owe you, saves your client time as the won’t have to calculate total themselves.
  • Incentives and Promotions: Your invoice is the perfect place to peach your products and services to ensure future business deals. You can let your customers to know about your seasonal promotion and offers and even offer an incentive on early payments. This can make your customer pay you on time.
  • Multiple Payments Options: Make it as easiest as possible for your client to pay you by offering multiple payment options. Through the online payment gateways, you can now send payment link along with the invoice and let your customer decide how they want to pay you. In the end, you might get paid faster.
  • Being Polite Pays: Including a Thank You note can improve the likelihood of getting paid faster. People are more likely to do the business with the polite client again and will feel more in the client to pay them faster.

Is and Invoice legally binding?

In general, no they’re not. An invoice by itself isn’t legally binding. If they were then what would stop you from just making all the money by just firing out invoices out to whoever you want. In order for them to become legally binding both the buyer and seller have to agree on the terms.

We can’t say for the specifics of your country, but in general, it’s important that both sides have evidence of the agreement at least in email or better yet in a signed contract.

You don’t want to be that person that gets in the situation where the client or customer is refusing to pay.

Manoj Prasad

My name is Manoj Prasad, founder of Trendinwealth.com and Trendinwire.com. I graduated in Information Technology from Mumbai University. I always try to learn new things in the Tech field, Business, and Finance. Wherever I get experiences and knowledge, I keep trying to share with you.

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