A small business guide to invoicing

Learning the ins and outs of invoicing will help you get paid on time, and maintain positive relationships with your clients and customers. This guide for small business owners and self-employed people covers all the invoicing basics you need to know to get started.

What is an invoice?

An invoice serves as a record of any goods or services you provide to a customer and a breakdown of the cost of those items. Invoices also list payment methods and deadlines, so your customers know how and when to pay you.

The two main functions of an invoice are to:

• Request payment
• Record and evidence business income for the purpose of reporting your earnings to HMRC

How to choose invoicing software

When it comes to choosing an invoicing software, you’re not short of options. For most self-employed people and small business owners, the easiest way to manage invoices is to use invoicing software, rather than manually generating invoices. These platforms typically require a small monthly fee and come with a range of invoice templates which can be customised to suit your business.

Here are some of the most popular paid invoicing platforms for small UK businesses:

• QuickBooks (£8 to £12/ month)
• FreshBooks (£19 / month)
• Zoho (£6 /month)

There are also a few free invoicing apps that may be suitable for smaller organisations or those with fewer regular clients, for instance:

• PayPal
• Zettle
• Square

When choosing invoicing software, look for ease of use, template options, and facilitated payment methods. If you accept credit card payments, for instance, you’ll need an invoicing platform that can include this as a payment method.

Choosing an invoice template

It’s important to spend a little time choosing an invoice template that best suits your brand and business type. There are a few different categories of invoice template, including:

• Fixed-fee invoices
• Finance charge invoices
• Product invoices
• Service invoices
• Mixed invoices (covering both products and services)

Beyond choosing the right type of invoice, here are some other factors to consider:

• Is your template customisable? You may be able to change colours and add logos to ensure your invoices match your branding.
• Can you change the invoice language? Some platforms allow you to change the language on your invoice. You’ll need this facility if you deal with international customers.
• Does it include all entry fields? Ideally, your chosen template should allow you to enter your customer’s name and address, your business details, billable items, payment due date, discounts, and additional information (for instance, fees for late payment).

What information should you include on an invoice?

At the very least, your invoice should include the following information:

• Invoice number
• Your business name and address
• The customer’s name and address
• Details of goods and/or services provided
• Cost of goods and/or services provided
• VAT (if applicable)
• Details of payment methods
• Payment deadline (and late payment fees, if applicable)

Remember to set out your terms clearly

The importance of being specific and clear about your payment terms cannot be overstated. If your customer cannot instantly determine the amount they need to pay, by what method, and by what date, mistakes and late payments are more likely to occur.

Payment mistakes can seriously impact your business cash flow. For instance, international payments sent incorrectly can take up to a week to bounce back to the sender’s account. Considering most international payments take a week to clear anyway, mistakes of this nature could delay your incoming payment by a fortnight — and that’s if the customer rectifies the mistake in a timely manner.

The bottom line is that you’ll save yourself a great deal of trouble by making sure your payment terms are detailed and easy to understand.

How to send an invoice

Most customers prefer receiving invoices digitally, via email. Even if you deal with a customer who prefers paper invoices, it’s a good idea to forward the invoice via email too. That way, you’ll have a record of when it was sent and received should any disputes arise.

If you use invoicing software, you should be able to save customer details and generate invoices automatically. This makes invoice delivery as fast and efficient as hitting the “send” button — you won’t need to waste time re-entering customer details every time you need to request payment.

Why is it important to invoice correctly?

Making a mistake on an invoice can cause friction with your customers, which it goes without saying, is bad for business. If you list costs incorrectly, your incoming payments may be delayed. Entering an incorrect payment date can also cause serious disruption, as you may not be able to rectify the error once the customer has passed the invoice on to their accounts department.

Keep in mind that invoices are also essential tax documents, which means you could get in trouble with HMRC if your invoices do not include the right information.

14/06/22: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.