What is an invoice? The essential guide for businesses

The financial health of your small business depends on accurate recordkeeping. Invoices are one part of those records, providing critical documentation to ensure you get paid for services and have a paper trail of your earnings.

This guide breaks down what an invoice is, essential invoice details, best practices for issuing one, and the types of invoices you might use at different project stages. We also highlight the advantages of using invoicing software—like HoneyBook—to set up a well-organized and compliant invoicing process.

What is an invoice?

An invoice is a document that lists the goods or services you provided to a client and the total amount owed for them. It sets clear expectations between buyers and sellers by displaying itemized services, pricing, taxes (if applicable), and invoice payment terms.

As proof of a transaction, an invoice also includes billing cycle details, like an invoice number, issue date, and payment due date, along with buyer and seller contact information.

While an invoice isn’t legally binding and a signed service contract is important, invoices facilitate on-time payments, healthy cash flow, and clear financial records. Electronic invoicing and software extend these benefits by speeding up tax filing and analyzing financial performance.

Key differences between an invoice, a bill, and a receipt

Keep in mind that an invoice isn’t the same as a bill or a receipt. Each of these documents serves a unique accounting purpose. Here’s how they differ:

While both an invoice and a bill request payment, invoices are typically used in B2B settings and stipulate a future due date, often within 30 days of issue. 

When to issue an invoice

Understanding what invoices are used for can lead to efficient, timely business accounting. The next step is knowing when to send an invoice. 

Invoice timing and processing can vary, depending on your industry, service offerings, and project complexity. For example, it’s common for B2B consultants to either invoice once all services have been rendered or to divide large-scope projects into progressive, milestone-based invoices. 

Here are some common points in a project or transaction when you might issue invoices:

1. Upon completion of services

This timing is standard for service-based businesses. Independent professionals or business owners usually issue an invoice after agreed-upon services have been completed.

2. Upon shipment or delivery of goods

Retail sellers may send invoices upon shipment or delivery to confirm order fulfillment and request payment from buyers.

3. On a recurring basis

For subscription services or ongoing contracts, invoices are typically issued on a regular schedule, such as monthly or annually.

4. In advance of goods or services

Occasionally, invoices may be sent before work begins or goods get delivered. For example, advance payment may be required for very large contracts, retainer arrangements, or projects that require costly materials. 

Pro tip: All buyers and sellers have their own unique intake process for invoices. Ask clients where you must send invoices, such as their accounts payable team. 

Must-have elements on invoice documents

A professional invoice template helps you stay consistent and organized, ensuring no details are forgotten. To build a template of your own, you need to know what to include—from invoice numbers to payment terms. 

Here are seven components to include in invoices to maintain clarity and business compliance.

1. Invoice header and branding information

Your invoice is an extension of your brand, so include your business name, logo, and address at the top. An invoice must also have the client’s name and contact information. 

2. Invoice number

Every invoice should have a unique identifier that distinguishes it from the other invoices. Invoice numbers make it easy for both the buyer and the seller to reference it. For easy tracking, choose your own invoice numbering system, whether chronological, date-based, or unique to the customer.

3. Invoice date and due date

Dates on invoices help buyers and sellers keep their billing cycles organized. Unlike the invoice number, the invoice date defines when it was issued. Including due dates and deadlines helps timely invoice processing and avoids past due notices. 

4. Individual line items

When you list provided goods or services, itemize them. Include details like service descriptions, dates, quantities, unit prices, and line totals. The more detailed the invoice, the easier it is for your clients to understand what’s being billed and how to fulfill invoice payment terms. 

5. Invoice subtotals and total amount due

In addition to the total amount owed at the bottom, add subtotals that make it easy for clients to follow the accounting. Add lines for discounts, taxes, shipping, and any other charges applied. Invoicing software, like HoneyBook, automatically calculates subtotal and total amounts for you, cutting down time spent on manual math and reconciliations.

6. Invoice payment terms, methods, and policies

Clarify invoice payment terms, such as due date, payment window, or early payment discounts. Plus, specify the acceptable payment methods, such as bank transfer, credit card, or online payment link/button. It’s also important to note any late fee policies applicable if payment isn’t received on time.

7. Invoice notes or memo

At the bottom of the invoice, have space available for any additional details. For example, you might write a note about modified project scope, billing specifics, or any other relevant invoice information.

Types of invoices

Invoices in business vary in scope and purpose. Here are common invoice types you may need to adopt during your billing cycles to correctly collect payment.

Pro forma invoice

Clients may request a pro forma invoice as part of a custom service quote. Unlike a standard invoice, a pro forma invoice is sent before a project is started. It’s used as a cost estimate for the scope of the discussed project, including goods or services, shipping, taxes, etc. 

Standard invoice (or sales invoice)

A standard invoice is what typically comes to mind when businesses charge clients. This invoice requests payment after services have been completed and specifies all costs in a detailed, itemized list.

Recurring invoice

A recurring invoice is used for services that repeat on a regular schedule, such as a subscription, retainer fees, or managed services. For example, if you’re a business consultant on retainer with a client, you may have a recurring invoice scheduled for the end of the month with identical invoice payment terms and costs.

Final invoice

A final invoice is commonly sent at the end of a larger, multi-phase project. It wraps up the engagement by including all final costs in an itemized format. This may cover any overtime hours, modifications to the work scope, or outstanding balances after previous deposits. 

Best practices for issuing and sending invoices

Invoicing errors can delay payments, disrupt business cash flow, and break down trust with clients. As you issue invoices, do your due diligence to ensure accuracy and completeness. 

Here’s what you can do to avoid invoice problems:

• Create an invoice template so you don’t forget any details.
• Add your branding to the invoice for a professional look.
• Be as detailed as possible with service description, dates of service, etc.
• Add seller and buyer contact information.
• Itemize all goods or services, and include all relevant subtotals.
• Define invoice payment terms, and add all accepted payment methods.
• Track all documents with an invoice app or invoicing software.
• Automate the invoice payment process with reminders.
• Add a personal touch or message to show professional courtesy.

Using invoicing software is an all-round best practice to manage your invoices, receipts, purchase orders, and other documents from one central record of transactions. Platforms like HoneyBook can even help you automate invoices to streamline recordkeeping. 

Send invoices effortlessly and automate bookkeeping

Now that you know what is an invoice, it’s time to establish an accounting practice that’s organized, professional, and compliant.

If you send invoices on a regular basis, automating your workflow can save you hours each month. With HoneyBook, you can modernize the entire process—from inquiry to invoice—so you can reclaim more time for the creative work that matters. HoneyBook is built specifically for project-based businesses and allows you to automate administrative tasks and track financials effortlessly. Start your trial today.

FAQ

What does it mean to send an invoice? 

Sending an invoice means creating a professional request for payment that itemizes services rendered and costs. It serves as an essential record of sales for both you and your client, and facilitates on-time payment with your client’s preferred method.

What should you not put on an invoice? 

Never include sensitive personal information, like your Social Security Number, or any unprofessional, irrelevant comments on an invoice. Plus, remove any jargon or extraneous billing codes that could confuse clients. Finally, double-check invoice details for accuracy, as rebilling often leads to late invoice payments.

When should an invoice be issued? 

For B2B services, send an invoice immediately after a service is completed or a product is delivered. If you’re working on a large project, set up progress billing—sending invoices at specific milestones to ensure you don’t have to wait until the very end to get paid. 

How long should you give someone to pay an invoice? 

The standard for receiving invoice payment is 30 days—called “net 30” payment. However, some micro-businesses prefer payment within 10 days (“net 10” payment). Define payment due dates, as well as any late fees, clearly on the invoice to reduce the likelihood of getting paid after the deadline.