For business owners and managers, one of the top priorities is to get paid properly and in a timely manner. An effective invoicing process can help achieve this goal. Invoices contain information such as the customer’s details, the service or product availed, the payment terms, and the amount due. Although the use of invoices is commonplace, many don’t know the distinction between invoices and receipts.
Investopedia defines invoice as a “commercial document that itemizes and records a transaction between a buyer and a seller.” It is an important component of business accounting, particularly in audit and internal control. Aside from its accounting aspect, the invoice is considered a legal instrument that protects both the seller and the buyer. An invoice can either be a paper-based or digital document.
Although invoices have the same basic components and may look the same, they are actually different types. Wonder why? This is because invoices are intended to serve the unique processes, billing cycle, and payment terms of businesses. A business chooses the appropriate type of invoice based upon these factors.
Here we take a look at five of the most common types to help you decide which one to use.
Standard invoice follows the basic invoicing format which consists of the basic details about a transaction such as a date, names and addresses, contact details, line items, and payment terms. This is a versatile type of invoice that can be used for a wide range of business transactions.
Typically, a standard invoice is used in industries such as wholesale and retail trading, agriculture, and the service industry. Being the most widely used invoice type, you’ve surely seen one of these.
Ideal for deliverables that stretch over many months or even years, the interim invoice allows you to collect milestone payments even before a project is completed. With this invoice, you can get paid with a portion of the total contract price throughout the span of the project.
Typically, an interim invoice is used by transactions and projects that involve a huge sum. If you are worried that you might not get paid later, installment payments can minimize your apprehensions. It also reduces the risk of non-payment on your business. For example, if the client turns out to be a delinquent payer, collecting milestone payments would protect your cash flow.
This type of invoice allows you to get paid based on the percentage of completion. This way, you can generate revenue that can help pay your operations. The construction industry most commonly uses interim invoices because of the average cost of each project. Contractors send interim invoices during the on-going construction work, so they can collect installment payments, which they use to pay for workers, supplies, and other expenses.
Basically, recurring invoices are used for products and services delivered continuously and payments are collected at an agreed schedule.
Perhaps, the most common examples are our utility bills – electricity bills, telephone bills, etc. It is also used by banks and financial institutions, such as credit cards, loans, forex trading business, housing amortization, etc.
Recurring invoices are sent to customers on a predetermined billing cycle, such as twice a month, monthly quarterly, etc. It is a straightforward and systematic invoicing process that reduces the possibility of missing out on a payment. For example, you can set the billing on the fifteenth day of the month or a week before the due date. An invoice is prepared around this time and sent to the customers as scheduled.
In recent years, we’ve seen many businesses turn to automation for accuracy and efficiency. Billing software is a powerful tool that you should consider investing in. Experts at the enterprise billing system,The Kansys Edge point out that with this IT solution, you can generate and send digital invoices directly to customer emails with ease. It greatly reduces manual intervention in the billing process thereby minimizing errors.
Commonly issued by professionals whose deliverables are evaluated based on time rendered, timesheet invoices contain the basic components of an invoice plus the work hours and an itemized list of accomplishments.
This is commonly used by professionals whose services are more intellectual than technical like lawyers, psychotherapists, private teachers, and consultants. Likewise, freelancers who render services on the basis of time may also bill using a timesheet. Businesses that rent out items, such as venues, cars, heavy equipment, etc, may also use this type of invoice for their transactions.
Unlike other types of invoices, commercial invoices are less common. Typically, this invoice is intended for businesses that involve international trade, such as logistics and shipping.
Aside from the standard invoice entries, the commercial invoice includes details about the customs valuation in international borders. This invoice contains information such as shipment quantity, description of goods, weight/volume, packaging format, customs duties and taxes, and the total value of the sales.
By Maria Victoria MacAraig – Contributor | 30/06/2020
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