Posted on: 09 April 2015

Invoices are a vital document for getting paid for the work you do. They can be really quick and easy to put together but getting it wrong can mean delays in you getting paid.

With valuable input from Nicki Pearson, Partner at Westbury Accountants and Business Advisors, here’s a rundown of what you need to know about invoices (including a downloadable guide to producing an invoice) and how to help them add value as a communication tool.

Why invoicing is important

Invoices inform your customers about the work you have done, how much they owe you and when they have to pay you by. This makes chasing your money much easier. They are also a way of knowing what cash is due into your business, which is vital when large outgoings are due.

But there’s more to it than that, as Nicki explains. “Assuming you are in business to make money, then your invoicing function is critical,” she says. “A clear invoice, delivered in a timely fashion ensures that there can be no doubt what you are owed,” she adds.

Invoices are also the primary record of the turnover of your business. “When you send your accounting records to your accountant to prepare your tax return or company accounts,” says Nicki, “these will be important to ensure that you are paying the correct amount of tax.”

The risks from incorrect invoices

If you leave out vital information on your invoice, such as how much your customer owes you or a description of the work you have done, you run the risk of your customer not paying what they owe. They may either reject the invoice, pay the incorrect amount or they may simply ignore it all together.

An invoice which contains errors is likely to generate queries from your customer which could ultimately delay their payment to you,” reiterates Nicki. “Worse still if you miscalculate your invoice a customer may end up paying you less than they should have done and your profits will suffer as a result.”

If you are VAT registered, you are required to include certain information on your invoices. “If information is missing or the VAT element is calculated incorrectly,” explains Nicki, “this could result in an enquiry from HMRC. This may be time-consuming and could result in penalties being levied.

The information your invoice template must include

There is certain information that your invoices should show:

  • the word ‘invoice’
  • a unique number
  • the date of issue
  • your company name, trading address, contact information and registered number
  • the name, address and email and/or telephone number of the person you’re invoicing
  • what was sold, how many, and how much each was
  • how much you’re owed
  • when the goods or services were supplied
  • when you should receive payment (your payment terms) - if the terms are not stated the normal process is 30 days.

Click here to see our guide to producing an invoice template and make sure your invoices contain all this information.

If you are a sole trader, your invoices should include your name as well as the name and address of where you conduct your business.

If you are trading via a limited company,” explains Nicki, “then the invoice should also show your company name, registered office address and company number.”

If your business is VAT registered,” she continues, “you will also need to show the following:

  • your VAT registration number
  • the rate of VAT applied
  • the VAT due
  • the gross total amount due.”

How your invoices can work harder for you

As well as the vital information shown above, your invoices can act as a powerful communication tool between you and your customers if used in the right way.

You may want to go one further and offer your customers the opportunity to contact you if they want to discuss any element of your work. For example, you can also say ‘If you have any questions, please call…’. You can offer your customers discounts off future purchases, or use this to cross sell additional products.

If the format of your invoice, your type of business and the sort of customers you’ve got warrant it, you may want to add details to your invoices of up coming products, events or promotions. However, be careful that this doesn’t interfere with the vital information on your invoice – keep it in a small box to one side. If you struggle fitting it in, it may be best to leave it out.

You may also want to leave space for information about your customer’s account –  perhaps you regularly invoice them and they have expressed interest in knowing what is outstanding at any one time. However, this data needs to be accurate, so be sure of your ability to manage the figures each time an invoice is submitted.

How your invoices can work harder for your customers

Here are four top tips for achieving this:Your customers are no doubt busy people. So they will appreciate a good quality invoice with everything clearly displayed and convenient payment options to make it easy for them to settle what they owe you.

  • make the word ‘invoice’ prominent – it needs to be easily recognisable to your customer so that the document is put in the right pile
  • make sure all your invoices look the same – consistency means they’re recognisable amongst all the other paperwork and your customer knows where to look for helpful information about what to pay you by when
  • don’t leave anything ambiguous or open to interpretation – use plain English and be clear about the work you did and the amount that is owed
  • make sure your invoice is sent to the right person and request acknowledgement if necessary – having a name on the envelope and invoice means that it gets into the right hands sooner.

Nicki also advocates giving your customers a few alternatives for paying you – another way to reduce the risk of you ending up with unpaid invoices.

Provide a number of different payment options and give clear details for each on your invoice i.e. cheque payee, bank details for online transfers etc,” she says. “You could also look into the possibility of accepting payment by credit cards. With mobile technology it is getting easier and easier for small businesses to be able to do this using providers such as izettle.com.

If you provide a regular service to your customer then you may also wish to consider getting them to set up a monthly standing order or direct debit to cover your fees,” she adds.

This is because, at the end of the day, the way in which you request and receive payment from your customers is as much part of the quality of your customer service as it is when you provide the work for which they are paying you.

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