What is an invoice number?
An invoice number is a unique set of numbers and letters assigned to every invoice processed by any business. After delivering a product or service to a customer, the business sends an invoice to request full payment. So, think of an invoice number as the identity of a specific transaction that allows both customers and businesses to keep track of payments easily.
An invoice number typically links to all the relevant details of a business transaction, whether that is a product sale, service offer, or B2B trade. It’s also important for businesses to use invoice numbers to maintain organised financial records and smooth accounting processes.
What to include in your invoice?
When generating any type of invoice, make sure to include the following important information:
- Business name and contact information: This should ideally be at the top of the page.
- Client’s name and contact information: This makes sure the recipient is unmistakably identified.
- Invoice number: This differentiates all the invoices and increases the speed of processing.
- Invoice date: This shouldn’t be backdated more than 5 days.
- Description of services or products: Details about what the invoice covers.
- Payment terms: Specify when payment is due.
- Total amount due: The sum that needs to be paid.
- VAT breakdown: According to the HMRC guidelines, the invoice should show the VAT breakdown.
- PO number: This is the purchase order number, which refers to the purchase order issued by the customer to request the relevant products or services.
How to generate an invoice number?
Small businesses and sole traders typically track invoices by simply assigning a sequential number to them. This basic format often works well when managing just a few clients. It usually includes only the basic details, such as the date of issue, the invoice number, or the client’s name. As long as your invoice numbers fulfil their purpose, they’re doing the job.
However, as businesses grow, so do the clients, employees, and business departments. That is when a more detailed invoice number generating system could be helpful. It would keep things organised to easily handle invoices for a large client base, communicate across departments, and support accurate accounting processes.
This doesn’t mean you need expensive software to start with. While invoicing tools help with automation, your system’s foundation should be clear and easy for your team to understand and apply.
A well-generated invoice number system should:
- Be clear, logical, and consistent.
- Include a letter or number unique to the business. This could be the company’s abbreviation or initials.
- Be easily accessible to the employees.
- Have written rules so everyone can follow the system effectively.
- Include basic details to quickly identify when a transaction occurred and which customer it relates to.
- Be capable of being executed manually or automatically through software.
- Match the scale and needs of your business.
In the next section, we’ll explore a few commonly used invoice number formats, which include both simple and detailed systems.
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What invoice number format should you use?
The format of the invoice number you select depends on your business needs and the level of detail required to track the high volume of processed invoices.
- Consecutive invoice numbers: Numbering your invoices based on their sequence of issuing is one of the simplest and most used methods. It’s also usually used by many businesses when they start, as discussed earlier. Each new invoice receives the next number in sequence from the prior number.
- Client-based invoice numbers: Assigning invoice numbers based on client identifiers is typically used by businesses that work on a contract basis with a handful of regular clients. B2B suppliers often use this method, naming invoices with a client code followed by a sequential number.
- Time-based invoice numbers: This type of numbering format involves incorporating the date and year of issuing into the invoice number. So, instead of focusing on the client, it is centred only around the chronological sequence of the invoice. For example, you could use a format like 2024-001 or 2023-001, where the first part indicates the year or month and the second part is sequential.
- Project-based invoice numbers: If you’re in a manufacturing industry or own a production capacity, using project-specific invoice numbers can be beneficial. You can assign a unique project code followed by a sequential number (e.g., PROJ01).
- Custom alphanumeric codes: Some businesses prefer creating custom codes that combine elements such as client ID, project code and other details. An example of this type is ABC-P01-2023-001, where ABC is the client, P01 is the project, 2023 is the year and 001 is the sequence number.
Example of an invoice number
For example, a UK business might use an invoice number like INV-2025-0731-003. This format typically includes:
- INV, short for invoice, indicates the nature of the document.
- 2025, the year of issue.
- 0731, followed by the date of issue.
- 001, a number showing it’s the first invoice issued that day.
When this invoice number is cross-referenced with internal business records, it reveals all its associated details, such as the customer’s name, the items or services billed, the total amount, and the payment status. This retrieval of information is the actual purpose for generating invoice numbers.
Why are invoice numbers important?
Invoice numbers play an important role in effectively storing and organising a business’s sales data. We have listed the critical benefits of using invoice numbers for businesses below:
1. Building a transaction record
Invoice numbers help businesses establish the foundation for an organised transaction database. They are useful for various purposes, such as tax evaluation, accurate accounting, and maintaining internal records. Each invoice number corresponds to a specific transaction, making it easy to review and reconcile invoices. With digital tools, this database can also be uploaded to the cloud and remain accessible for several years after issuance.
2. Preventing invoicing mistakes
Invoice numbers are clearly important for businesses, but they are also equally essential for customers. From the customer’s perspective, unique invoice numbers help prevent costly mistakes like duplicate payments. They are also important for resolving product disputes, exchanges, or replacement requests. Each invoice can be cross-checked against records to make sure the details are accurate to avoid invoicing errors.
3. Simplifying the tax process
Businesses can quickly refer to relevant invoices to verify income and expenses during tax season. This makes sure the system complies with tax regulations, makes filing easier for businesses and also reflects transparent business practices.
4. Improving customer communication
An invoice number provides a clear reference point for payment discussions with customers. This clarity resolves disputes, confirms payment statuses, and maintains transparent communication with customers. These practices result in better business relationships.
5. Managing cash flow effectively
Businesses can better manage their cash flow by tracking unpaid invoices using invoice numbers. Having an accurate idea of outstanding invoices helps in planning for expense management so the business has enough liquidity to meet its necessary payments on time.
According to a report by Skynova, 61% of late payments are due to incorrect invoices.
What is the difference between an invoice number and a receipt?
An invoice is a request for payment issued before the payment is made, while a receipt is proof of payment given after the transaction is completed. Both are also different in their specified details. Invoices include the amount due, while receipts confirm payment has been received.
Common issues with invoice numbers & their solutions
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Duplicate invoice numbers
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Missing invoice numbers |
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Inconsistent numbering systems |
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Difficulty in tracking invoices |
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Invoice numbers are crucial for maintaining organised financial records as they correctly identify the payor and payee, mention the due date and the amount to be paid. But if not managed properly, they can create some issues.
1. Duplicate invoice numbers
Duplicate invoice numbers can occur when multiple invoices are created manually or when different departments within a company use inconsistent numbering systems. This can lead to confusion and payment delays.
Solution: Implement a centralised invoicing system that automatically generates unique invoice numbers.
2. Missing invoice numbers
Missing invoice numbers can disrupt the continuity of your records, making it difficult to track payments and reconcile accounts. This issue often arises from human error such as accidentally skipping a number when manually entering invoice details.
Solution: Use accounting software that automatically assigns invoice numbers sequentially.
3. Inconsistent numbering systems
This problem can occur when different formats are used within the same organisation. For example, some invoices use a sequential system while others incorporate client codes.
Solution: Standardise the invoicing numbering system across the entire organisation. Establish clear guidelines for how invoice numbers should be formatted and used.
4. Difficulty in tracking invoices
Businesses may struggle to track invoices, especially when dealing with a high volume of transactions. This can result in lost or overlooked invoices, which can adversely affect the cash flow.
Solution: Implement an invoicing software that includes a searchable database. This allows you to quickly locate invoices by number, client or date. Microsoft Excel is a simple example, but the UK market offers full-fledged accounting software for invoicing. Choose a suitable one for your business.
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Invoices should be kept for at least 5-7 years. This retention period aligns with most tax laws and regulations, ensuring you have the necessary documentation for audits, disputes and financial reviews. It’s better if you have digital backups for easy access and to prevent loss.
A purchase order number is a reference number provided by the buyer. It links the invoice to the original purchase order, helping both buyer and seller track and verify orders.
Typically, the best practice is not to delete an invoice but to label it as null or void, followed by its reason. That is because deleted invoices produce a gap in your financial records and invoice number format. If a business follows the sequential format for numbering its invoices, a deleted invoice could disrupt the sequence and cause confusion.
