What is Sales Invoices? Complete Small Business Guide on How to Create One

Effective Invoicing is of utmost importance to small businesses because it helps them stabilize their finances and relationships with their clients.

An invoice is not merely a paper indicating the price owed; it is a professional form of communication to ensure clear and precise documentation. Proper billing allows a business to track sales and receivables effectively.

In the meantime, clients learn a lot from detailed information, such as services rendered, amounts owed, acceptable methods of payment, and due dates.

Master everything necessary about sales invoices: its importance, the different types, and the step-by-step procedure to prepare it.

What You Need to Know About Sales Invoices

What is a Sales Invoice?

A sales invoice is a document representing a sale that has been made. It includes whatever was sold, the amount, the date, the amount payable, the tax, if applicable, terms of payment, and any other considerations.

Legally, the sales invoice is part of a contract and thus should present all details of an agreement transparently, an essential point for large volume purchases.

Types of Sales Invoices

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The types of invoices ensure that every other kind of sales transaction is covered to ensure smooth and precise operations between the seller and the buyer.

Following are the sales invoices applied for every business transaction:

• Standard Invoice: The standard invoice is the most applicable amongst all concerning the different kinds of invoices applied in commercial transactions. It articulates and expounds upon the description of products supplied or services executed with quantities, prices, and the total amount of payable shifts in turnover accompanied by employment payment terms and due date preceding turning over work to clients.
• Pro Forma Invoice: A pro forma invoice is seen to be a tentative sales document that a business sells to customers in advance of shipment of goods or provision of services to him. This describes the transaction terms that could be along the lines of price and quantities, among other relevant details, but this does not represent a demand for payment.
• Recurring Invoice: In the case of recurring invoices, there are transactions based on routine purposes for the same amount charged to the customer at periodic intervals. For example, every month or year.
• Commercial Invoice: It is mainly adopted in International Trade. It carries essential information about the goods shipment, including descriptions and quantities values, country of origin, and exporter and importer contact address.
• Interim invoice: An interim invoice usually is payable for partial pay that is put in place for any sizeable existing project or long-time contract.
• Past-due Invoice: A past due invoice is submitted to remind a customer of a missed payment deadline.
• Credit Memo: A credit memo is a memorandum prepared and dispatched by the seller to the buyer, reducing the payable amount against an invoice previously issued by him. Mostly doing so after the return of goods, overbilling error, or adjustment.
• Debit Memo: A debit memo is issued by a seller to a buyer to increase the amount due on a previously issued invoice. It is generally used to correct under-invoicing errors, add extra charges, or reflect adjustments for goods or services previously provided.

How do Sales Invoices Work?

A sales invoice is essentially one of those documents everyone needs, no matter whether they are small business owner or part of a big corporation. Before we get to how the sales invoices work, let us look at the essential elements a sales invoice should contain.

Each Invoice should include:

• Contact Information
• Invoice Number and Date
• Description of Goods or Services
• Payment Terms
• Amount Due

With those five necessary elements, let’s go on a walk through the invoicing process.

The Invoice Process

1. Creation: In this stage, a seller at the point of sale creates an invoice indicating particulars of items or services sold, quantities, prices, and the aggregate price of purchase.
2. Transmission: The invoice is then sent to the buyer by email or regular mail or uploaded on a web-based invoicing tool, e.g., in the HubSpot Invoices tool.
3. Inspection and Acceptance: At this stage, the buyer examines the invoice to ascertain its legitimate and accurate statement.
4. Processing: The buyer enters the invoice into their accounts payable system.
5. Payment: The buyer liquidates the amount due on the invoice by the terms and conditions agreed upon for payment.
6. Recording: The seller records payment within their accounts receivable. Hence, the invoice is considered paid, with the corresponding financial changes.
7. Follow-Up: The seller may follow up with the buyer regarding reminders or past-due notices in case the invoice is not paid by the due date.
8. Discrepancy Handling: In case of any discrepancies or disputes against the invoice, the seller and the buyer are supposed to communicate and resolve issues, possibly through credit or debit memos.
9. Deposit and Reconciliation: The seller deposits the payment and reconciles the payment to the specific invoice.
10. Records Management: Both the seller and the buyer retain copies of the invoice for their financial records.
11. Financial Reporting: With the help of receipts and outstanding invoices, a seller shall prepare reports for shareholders, balance in and out cash flow, and decide on some other strategic business move.

The Importance of Sale Invoice for Businesses

A sales invoice, besides it being a tool for billing, plays a very crucial role in the improvement of sales operations, planning, and forecasting, among other things. For businesses, it has several advantages. The benefits of the sale invoice include:

• Organized Accounting: Sales invoices act as a record of transactions, thus ensuring that the financial records stay accurate and that the accounting process is done in a better, convenient, and organized manner. They help businesses operate their accounting systematically, easily audited, and efficiently when reporting their finances.
• Source for Tax Returns: Sales invoices are beneficial in preparing accurate tax returns, as they list down the revenues and expenses of your business. These sources make sure that your business is complying with the tax code, and they make it easy to derive accurate tax paperwork and file it. Properly kept invoices will help a business identify deductible costs, and this is the proper mode of reporting to avoid mistakes.
• Well-managed Inventory: Sales invoices are necessary to operate appropriately. They give exact information on the goods sold to enable the stock to be on hand accurately. Since a sales invoice is maintained on all transactions, the information updated pertains to inventory with a view to avoiding stock-outs or overstocking. This level of detail in tracking will ensure the efficient management of inventory, control of costs, and effective strategy for replenishment.
• Accurate Analytics: Detailed data from the sales invoices about each of the transactions will help businesses to have an insight into sales trends, customer behavior, and patterns of revenue. Effective Invoicing will bring about better forecasting, better-informed decisions, and optimized strategies for fostering growth and profitability.

How to Create a Sales Invoice?

Steps to Create a Sales Invoice

Creating a sales invoice need not be a Herculean task. Whether it is a small business that loves the plain simplicity of a word processor or it is a massive behemoth in the category of corporations using high-end accounting or CRM software, it’s always a well-structured template of an invoice that comes to the rescue. Customizable templates will significantly aid the task, enabling greater attention to business operations.

Shall we consider the basic steps when creating a simple but professional sales invoice:

Precise your Business Details

An experienced and recognized sales invoice should bear your business details at the top. This should include your business logo (if you have one), business name, address, telephone numbers, and e-mail address. This would be an ideal inclusion of information in verifying your identity and giving your customers all the contact information they can use to get to you.

Include The Customer’s Contact Information

List the complete contact details of the customer. For example, list the customer’s first and last name, company name, physical address, telephone contacts, and email address. Include the contact person’s name, especially in large companies where the billing person is not the same as your usual contact. If you are working on a template, ensure the template has all the fields to fill in this information thoroughly.

Assign invoice number

For every invoice you write; it should have its distinct number, which can be used for simple tracking and reference when dealing with customers. Either your software will automatically generate these numbers, or you have to devise a system for numbering independently. Of course, a straightforward sequential way, Invoice n°001, n°002, etc., is effective.

List Products or Services Provided

For transparency and clarity, the sales invoice should include a detailed list of products or services. Each line should contain a short description of the product or service, the amount supplied or hours worked, and the applicable service rate or unit price.

Precise Payment terms

Clearly state payment terms on your sales invoice. Acceptable payment methods include cash, check, credit card, and crypto-currency. Indicate payment should be made no later than: Can be a specific date or within a timeframe from the invoice date of issue, generally 30 days. Indicate after what time the interest terms change if the payment is made late. Example: Late payments bear an interest of 1.5% per month.

Include Payment Due Date

Indicate the payment terms of the invoice to avoid any confusion. This could be a specific date, for example, “Payment due March 20, 2024”, or a term, for example, “Payment due on receipt.” Make sure your bookkeeping system will determine this date mechanically based on the date of the invoice and the terms of payment for this client.

Mention the Total Amount Owing

Identify the total amount due on your sales invoice. Break down the costs by line item, listing the costs per item, including any taxes, allowable discounts, and pre-payments. Take care to subtract credits or deposits made by the customer. A correct total eradicates the possibility of miscommunication and ensures both parties know to the penny what is due.

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Sales Invoice Template

With the steps in making a sales invoice kept in mind, this is a general idea of what a typical sales invoice might look like:

HubSpot’s Free Invoice Generator & Templates

You can create professional and free invoices on HubSpot quickly. They have a free invoice generator that allows you to get started by filling in all your company details.

Use the “+ Add more” button to add more lines or the tool icon to add in your color palette. Once you finish putting in all the details, click “Download now” to download your invoice in PDF.

When you are done with the download, you can email the invoice to your clients quickly or print it directly for mailing to clients.

HubSpot also offers free invoice templates for Microsoft Word to fulfill all your invoicing requirements. They are fully editable, where they can be saved in a PDF.

When you want to download this template, you can only fill out the form on their invoice template generator. HubSpot’s free invoice generator and templates provide a quick remedy for all of the hassle attached to having to make invoices entirely from scratch on your own.

Key Differences between Sales Invoice and Sales Order

Although the two documents, sales invoice, and sales order, are part and parcel of the sales process documentation, they slightly differ in purpose and the points where they fall in the sales cycle.

A sales order will be issued after a customer has made an order detailing the goods or services they intend to purchase. In other words, this document simply indicates what the buyer wants to buy and, at the same time, confirms whether the seller will be in a position to supply the goods or services required by the buyer at an agreed time.

In actual terms, it is an agreement that guarantees clarity and mutual consent about the specifications of the transaction even before goods are delivered or services rendered.

An invoice is only prepared when the firm completes an order, which denotes delivering a product or a description of services. Because it is the official bill sent out to the customer, the document is always used for the payment process.

A sales invoice always consists of an itemized sales list, the sale value, taxes, and credits or prepayments before calculating the sale amount. It usually deviates from the original sales order because it carries the additional costs that could have been used in that process, say, through shipping or any late changes in the order.

The supplier prepares both, but the sales order is made before the sales invoice in the sales cycle: the sales order confirms that the seller can supply the goods according to the needs, but the sales invoice closes the financial transaction.

In brief, some fundamental differences between a purchase order and an invoice include:

1. Time
2. Sales Order: It is created after receiving a customer order and before undertaking anything to do with the order.
3. Sales Invoice: It is produced after the order has already been fulfilled as a payment request for the consignment.
4. Purpose
5. Sales Order: It’s an acknowledgment and confirmation of the customer’s purchase order at the seller’s disposal of goods or services.
6. Sales Invoice: It contains the description of the transaction with a request from the customers for payments.
7. Content
8. Sales Order: Description of Goods/Services, Quantities, Prices, Delivery Terms.
9. Sales Invoice: It shows the detailed itemized costs, additional charges if applicable, such as for shipping or taxes, and the total amount payable.

Conclusion

Mailing professional-looking sales invoices to clients is an integral part of establishing a healthy financial paper trail and monitoring the inventory.

Effective keeping of records of the invoices that are mailed will serve as the means to the regulation of cash flow, at the same time providing for a fair and comprehensive description of the transactions.

With technology like HubSpot, your salespeople are easily able to prepare and dispatch invoices, which increases the speed of the customer’s payment.

Sales invoice also offers you an excellent planning tool. You will be able to develop a clear budget forecast and identify the most popular and best-seller products.