What is an Invoice?
An invoice is a record of a payment that a business issues to its seller. In simple terms, a bill that specifies the quantities and costs of the products or services provided by the business.
What Makes Different Types of Invoices?
Different types of invoices are generated based on their specific purposes and the information they contain. For example, a bill for a local sales transaction will definitely be different than that for an international purchase. Their contents will also be different.
We can have different types of invoices based on:
- Purpose of the invoice
- Contents and additional information
- Timing and frequency of issuance
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Essential Information Written on an Invoice
The content of an invoice can vary depending on its type and purpose. An invoice typically includes all the following things to ensure clarity:
- Contact information of the business
- A unique serial number
- The date of issue
- A description of services provided
- The quantity and price of each item
- The total amount due
- Applicable taxes or any additional charges
- Payment terms
Types of Invoices
Let’s take a look at 9 different types of invoices:
1. Standard Invoice
A standard invoice is the most widely used type of invoice by businesses. It simply displays the amount that the customer has to pay in exchange for the services offered by the business. It is used in everyday shops, convenience stores, fabric shops, restaurants, etc. It typically includes the transaction details, payment terms, and total amount pending.
2. Proforma Invoice
A proforma invoice is a bill sent to customers beforehand for a shipment of goods. It gives a client an idea of what to expect. It is mostly used when the delivery of goods is international to communicate any additional charges, like customs.
You can imagine this invoice as a preview of the sales record before an actual sale.
3. Commercial Invoice
A commercial invoice is used in international trade and acts as customs proof provided by the business to export an item across foreign borders.
It includes important information necessary for the evaluation of customs duties and inspection.
4. Credit Invoice
A credit invoice (also sometimes called a credit memo) is generated to keep a record of a refund or revise a previous invoice. It’s often used in cases of returns or to correct a billing error. Note that a credit invoice is specific when the current amount is less than the previous amount.
5. Debit Invoice
A debit invoice is issued to increase the amount that a customer owes. This could be due to a pricing mistake in the original invoice or additional charges. This invoice is generated to correct a billing error but is specific to when the current amount is more than the previous one.
6. Timesheet Invoice
As the name suggests, a timesheet invoice is used by a person or business that charges by the hour. It includes the number of hours worked, the hourly rate, and the total bill pending. Mostly, it is represented in a table layout because that makes the calculation easier to understand.
You’ll see it mostly used by freelancers, bakers, businesses that sell handmade crafts, or contractors.
7. Recurring Invoice
Recurring invoices are billed for ongoing services or subscriptions, on a weekly, monthly, quarterly, or annual basis. The bills you receive from your internet provider, subscriptions for online sites, or a streaming service are sent to you regularly with fixed time intervals. All of these count as recurring invoices.
8. Interim Invoice
Interim invoices are generated at regular intervals during a long-term project. They help businesses receive a portion of the payment as the contract proceeds instead of waiting to get paid at once. Note that businesses may issue more than one interim invoice during a project.
This type of invoice is very useful for businesses that work with their clients on long-term agreements. By receiving an agreed-upon portion of the total invoice value, businesses can improve their cash flow.
9. Final Invoice
Once a project is completed, a final invoice is sent to request payment for the balance of the work. It subtracts the amount of previously paid interim invoices.
FAQs
A receipt is generated as proof after a customer pays for a service. However, an invoice is issued by the business as a request to the customers to pay for a service.
No, this is not true. There is no difference in the validity of both. As long as they are properly generated, both invoices carry the same value. Many businesses in the UK prefer electronic invoices over paper invoices as they are time-saving, cost-efficient, and good for the environment.
