You could easily go through life without knowing what an invoice is. In our everyday lives as consumers we deal almost entirely in instantaneous transactions. When we pay for our shopping at the supermarket, when we go to the cinema and even when we make large purchases like a new car or home; we pay the relevant cost up front by way of cash, payment card or bank transfer. Yet approximately 75 per cent of all business activity takes place beneath this visible tip of the economic iceberg that we see as consumers.
If you are building a business that sells to other businesses, you will likely be a part of the 75 per cent. And here the invoice reigns supreme as the “Alpha Polar Bear” of this particular part of the economic iceberg. It is the document you send through to your customer that tells them what they need to pay you, when they need to pay it and how they can do so. Its critically important purpose is to get paid so that you can earn the cash that is the lifeblood of your business. Once you are into your stride as a business, invoicing will feel like brushing your teeth. Youll be able to do it almost automatically, without thinking. Yet when you’ve never had to do it before, it can feel like an inaccessible black box.
As a finance director I saw lots of invoices from our suppliers that needlessly shot themselves in the foot. The goal of this article is to avoid those pitfalls and provide you with a checklist of the things you need to include on your invoices to help them get paid.
The ultimate invoice checklist
Payment details: Tell your customer how they can pay you. If it’s bank transfer, include your full bank account name, number and sort code details on your invoice, along with international bank account (IBAN) details if your customer will be paying from overseas. If you’re accepting cheque (this will take longer to process so avoid it if you can!), tell your customer where to send the cheque to. But don’t be bound by these traditional payment methods. If you’re using online accounting software and electronic invoicing like Xeroor Quickbooks Online, there are some great online payment services like Stripeand GoCardlessthat make it incredibly easy for your customer to pay you.
Payment terms: This is the number of days after the date of the invoice that payment will be due. This is an essential part of your invoice to tell your customer when they need to pay it. Most common are 30-day payment terms, but be sure to negotiate as short a payment term period as you can with your customer. Also, go one step further on your invoice and don’t just tell your customer your payment terms but tell them the exact date when payment will be due.
Invoice date: The date that the work is completed and the invoice is raised. Without it, your customer can’t know when the payment terms run from. Aside from including this, make sure you invoice as early as possible. The sooner you invoice, the sooner payment is due.
VAT number: Where you are registered for VAT this is key. Without your VAT number, your customer can’t reclaim the VAT on the invoice. They may then refuse to pay your invoice until they have it, causing you delay and creating administrative workload for you in providing it to them. For further information about VAT requirements on your invoices, check out this great list from Gov.uk.
David Tuck began his career with Deloitte where he became a chartered accountant and chartered tax adviser. Thereafter he headed finance teams for Fever-Tree, which IPO?d in 2014, and WAYN.com, the social network, both of whom sold on payment terms. In 2013, he co-founded Chaser to build software to help businesses automatically chase up their customers to pay their invoices on time.