Invoices are one of the most important business documents for small business owners.
Sending an invoice to your client is essentially the first part of the payment process.
There are many different types of invoices that fit the different needs of business owners.
Knowing what type of invoice is best for you and at what time depends on your industry, how you want to get paid and how often you would like to be paid.
Before you begin, you should make sure you have a good understanding of what an invoice is.
The different types of invoices
A standard invoice is made by a business and issued to a client.
This is the most common type of invoice made by small businesses and can be used by just about every business.
It has a flexible format that suits most industries and billing cycles.
The parts of a standard invoice are:
- Your business’ name and contact details
- The client’s name and contact details
- An invoice number
- The costs of the services
- How the services are charged
- The payment details
A credit invoice is sometimes referred to as a credit memo.
A credit invoice is created by the seller and sent to the client with a discount, refund or correction of an invoicing error.
Its total number should be negative.
The client can use this credit on their next invoice should you do work with them in the future.
A debit invoice is often referred to as a debit memo.
A debit invoice is issued to a client by a business to increase the amount owed by the client.
Small businesses and freelancers can use this when they need to adjust an existing invoice.
You might work extra hours or more product is needed than expected and that is where a debit invoice can be issued.
This total amount is always positive.
The client will need to pay this on top of the initial invoice(s).
A mixed invoice combines credit and debit charges.
The total amount of this invoice can be either positive or negative depending on the amount of debit or credit.
This type of invoice isn’t regularly needed by small businesses. However, you might need it if you are invoicing a client with an existing credit with you and the project ends up costing more than anticipated.
It could also be used if you are reducing the cost of one project but increasing another.
Depending on whether the total amount of this invoice is positive or negative, the client might have to pay you extra or have credit for future use.
A commercial invoice is used by businesses that sell their goods to international clients.
This type of invoices requires special details of the sale to determine what the customs duties are for the cross-border sale.
These special details are:
- The number of items
- The weight/volume of the items
- A description of the goods
- The total value of the sale
- How the items are packaged
Timesheet invoices are used for work that is based on the number of hours worked and the rate of pay per hour.
This is used primarily by contract employees that are paid by the hour.
Professionals that commonly do this are:
- Babysitters and nannies
- Some tradespeople
An expense report is an invoice from an employee to their employer or a client to a seller for reimbursements for business expenses.
This isn’t always paid through an invoice and may just be included in payroll if the employed person is on the payroll.
Examples of reimbursements are:
- Travel expenses
- Work materials
- Car and transportation costs
Pro forma invoice
A pro forma invoice is an estimated invoice given to a client by a business before the services have been rendered.
It is an estimated cost of the work that the client will complete.
A pro forma invoice allows you to alter the invoice after a project has been completed to accurately reflect the work. Learn more about pro forma invoices in our detailed summary.
An interim invoice is commonly used for large projects where the business and client agree to break the total amount into multiple payments.
Interim invoices are sent to the client when a milestone has been reached with the corresponding payment for that milestone.
This type of invoice is useful for large projects and helping a business manage its cash flow over a long period of time.
A final invoice is sent to a client after a project has been completed to request the payment for the job.
This type of invoice is more detailed than a pro forma invoice or an interim invoice.
A final invoice includes the following:
- A detailed list of all the services provided
- The total cost of the services and a breakdown of the cost of each service
- An invoice number
- A due date
- Accepted payment method(s)
Past due invoice
A past due invoice is sent by a business to a client if the payment for a job is not received by the due date specified in the original invoice. In other words, this invoice type is for overdue invoices.
These invoices should be sent to the client straight away to ensure prompt payment.
The invoice will list all the services and/or items provided the payment details to make the payment. It also includes any late fees or interest.
A recurring invoice is used for businesses that regularly charge one amount for their services/products and the payment is normally issued in cycles.
This type of invoice is common in IT and freelance digital marketing services where clients will be a set package.
Software is useful for these types of services as it will automatically issue the clients the invoice.
An e-invoice commonly refers to any invoice that is sent electronically.
These invoices are common among freelancers and small businesses and especially common for businesses that provide an online service.
This type of invoice is often quicker and easier to make and issue than other invoice forms.
E-invoices are also mandatory in some countries that have introduced e-invoicing legislation.
A purchase invoice is a commercial document from a seller to a buyer.
It outlines the goods or services that were purchased, the quantity sold and their price.
Purchase invoices are used to prove that a product or service was bought and the associated of such products and services.
A sales invoice is a document from a business to a client.
It requests payments for products or services provided by the seller to the client.
The invoice will include a description of the products or services sold, their quantities and their prices.
It is used as an official record of sale for both the buyer and seller.
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