Transactions and payments are the fundamental blocks of running a business. Invoices help you record all the transactions you make with your clients and customers. But with companies working on different business models, the type of invoices issued can also vary.
In this post, we’ll discuss the main types of invoices every business should be aware of.
Types of Invoices
Invoices are of various types. If we sit down and list each and every one of them, the list will probably go past 15. Different recurring billing and invoice systems may support different invoice types.
So, instead of covering all types of invoices, we’ll delve into the ones that you’re likely to use in your day-to-day business operations.
1. Pro Forma Invoice
A pro forma invoice is like a pre-invoice that you send to your customer before fulfilling the order. This invoice doesn’t ask for payment. Instead, you use a pro forma invoice to show your customer how much they’ll pay once you deliver the product or service.
2. Interim Invoice
If you’re working on a large project spread across months, sending a final invoice at the end of the project might not be the best bet. And there are several reasons for it. Maybe your consumer doesn’t like the final product and rejects it completely. Or perhaps a price agreement issue may arise.
An interim invoice breaks down a large project into several smaller components. So, instead of sending the final invoice at the end of the project, you can send interim voices as you work.
Additionally, interim invoices also help you manage your resource and cash flow. When you work on a big project, keeping track of the labor and resources spent can be a hurdle. With interim invoices, you can better manage your resources.
3. Final Invoice
As discussed, the final invoice is the one you send after you complete the project or order. This invoice lists down all the work you’ve done, including the products and services you’ve provided. Since the final invoice is a demand for payment, it should include the necessary details, like total cost, payment methods, and due date.
The timing of the final invoice is critical. Be sure to send it as soon as you complete the work so you can get healthy cash flow in your business.
4. Past Due Invoice
Missed invoices are a common issue faced by small business owners. In fact, 39% of invoices in the US are paid late, showed a report by Sharescpace. A past due invoice is issued when your customers don’t pay you by the due date.
The purpose of a past due invoice is to remind a customer that they have missed the final invoice due date. When creating a past due invoice, mention all the details from the final invoice, along with any late fees or penalties you’re charging.
Similar to final invoices, timing is a critical factor in past due invoices, too. Be sure to send the invoice immediately after a customer misses the final invoice due date.
5. Recurring Invoice
Recurring invoices are mainly used by service providers. If you’re a freelancer or a digital agency, you likely charge the same amount every month. In such cases, you can use recurring invoices to bill your customers for the same amount repeatedly.
The use of limited invoices is not confined to freelancers and agencies. Let’s say you’re a security company that provides security to organizations on a contract basis. Since you’re probably charging the same amount every month, you can use recurring invoices to streamline your invoicing.
6. Credit Memo
A credit memo comes into play when you owe your customers money. Let’s say the product you supplied was damaged, and thus, was returned. Or you weren’t able to deliver the promised results, so your client now wants a refund.
In such instances, you can issue a credit memo that indicates the amount you owe to the customer. With a credit memo, you can either initiate a refund or provide credit to your customers that they can redeem later.
Must-Have Invoice Elements
Every invoice is unique and has a specified purpose. But regardless, the core purpose of an invoice remains constant – to record the exchange or transaction of products or services between two parties.
Hence, there are a bunch of elements that should appear on all the invoices. These include:
- Dates: Dates are one of the essential components of an invoice. Make sure you mention the date you created the invoice, the final due date, and any other dates worth mentioning.
- Business Information: Include all the necessary details about your company, such as name, contact information, and address.
- Customer Information: An invoice should also consist of all the information about the customer. This includes the customer’s name, contact information, and address.
- List of Items: The invoice should clearly mention all the products and services you had provided in the form of a clear, itemized list.
- Total Amount Due: You should mention the amount billed corresponding to each listed item. Towards the end, also state the total amount due, along with all the taxes or other charges added.
- Payment Terms: State all the payment terms and conditions. Mention all the payment methods you accept, such as cash, cards, check, etc. Also, state guidelines, if any, regarding installments or partial payments.
- Invoice Number: Lastly, have a unique number for each invoice. You can later enter this number in your recurring billing and invoice system to refer to the invoices you’ve issued.
The type of invoice you issue can depend on the products and services you offer and the payment terms you’ve agreed upon. But a Sharespace report suggested that 61% of delayed payments are due to incorrect invoices.
Therefore, it’s essential to invest in a robust client payment tracker app that helps you create, send, and manage invoices efficiently.
Check Out Moon Invoice if you’re looking for a powerful and cost-effective recurring billing and invoice system.