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How do I prepare invoices?

Preparing invoices is a process which many businesses will need to do, for their own and their customer’s records. Invoices vary in their content and style and there is no set standard.

What is an invoice?

An invoice is a document which is sent by a business to its customers for goods or services supplied. It states the amount to be paid and the due date. An invoice is not the same as a receipt, which is an acknowlegement of payment. 

The customer should check the invoice against any purchase orders and delivery notes and the calculations on the invoice should be agreed.

An invoice can either be issued on paper or electronically.

When do I need to issue an invoice?

When most retail sales are made, the customer cannot recover the VAT charged and the retailer is not required to provide an invoice, unless the customer asks for one.

However, if your business is VAT registered, then whenever you supply taxable (standard or reduced rated) goods or services to another VAT registered business, you must provide a VAT invoice.

What information must I put on an invoice?

The following bits of information needs to be included:

Information requiredExplanation
The details of the business issuing the invoiceName of business, address, telephone number, email etc.
VAT registration numberIf the business is VAT registered, their unique VAT registration number must be shown.
Customer’s name and address 
Invoice numberThis must be unique and must follow on from the last invoice (in sequential order).
Account and your refThe account is the business’s reference for their customer. You ref relates to a purchase order (a reference could also be included for a delivery note). 
A clear description of each type of goods or services requiredThe unit price, quantity, rate of VAT and rate of discount should be shown clearly for each item. Also show the amount payable (excl. VAT) for each iem and the currency.
Net price, VAT and total price including VATThe net total of all goods or services supplied. The VAT added (e.g 20%) and the total amount payable by the customer. 
TermsThese are the items under which the invoice has been issued. 

Other terms you could see on an invoice are:

TermExplanation
Cash termsNo credit.
30 days from date of invoicePayment due 30 days after the invoice date.
Net 30 daysPayment due 30 day after the delivery date.
Retention of title (ROT)Ownership of goods sold does not pass to the buyer under payment has been made.

 

What payment terms should I use?

When a decision has been made to grant a customer credit, then the customer will be advised (usually in writing) the following:

  1. Credit period – how long the credit will be available to the customer
  2. Credit terms – how long has the customer got to pay
  3. Credit limit – how much can they have on credit (often 2 months estimated sales)
  4. Discounts – trade or early settlement
  5. Late payments – usually there will be a section on late payment, penalties and interest, but many businesses may not enforce them.

Download: CICM guide to invoicing

The Chartered Institute of Credit Management (CICM) has created a useful guide to help you with your invoicing process. Click the button below to download.

Interactive tutorial: Recording income

The step-by-step guide takes you through:

  • Types of income 
  • Documents used when goods or services are sold
  • Different payment methods
  • VAT – including limits and registration.

Click on the Start button below to read more. 

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