As a new business owner, the world of invoicing can feel complicated and a little overwhelming. This guide should help you make sense of invoicing – so you can spend less time on finance and more time running your business.
What is an invoice?
An invoice is a document that a seller issues to a buyer. It includes information on the products and services provided, and the cost to the customer. It’s also known as a sales invoice.
It’s an important document for accounting because it records all the services sold, and it can be used as a legal record of a transaction between buyer and seller.
An invoice can be sent before a product or service has been provided (also called a proforma invoice) or afterwards.
What are the types of invoice
It’s fine to just say “invoice” when you speak to customers. But there are some other types of invoice you might come across.
What is a proforma invoice?
A proforma invoice is created by the buyer or customer before a good or service is actually provided. It’s essentially a quote for the product or services they plan to buy from you.
Even though it contains a lot of the same information as an invoice, it doesn’t hold the same weight legally. You should still send a sales invoice once the product or service has been received or agreed on (if you require payment in advance).
What is a commercial invoice?
You need to create a commercial invoice if you’re sending a product outside of the UK. It’s a document which customs offices review to decide which taxes and duties to apply to your shipment.
It is not the same as a sales invoice and is not usually used for payment, so you should still provide a sales invoice to your customer.
What information to include in an invoice
The HMRC requirements for UK invoices are:
The word ‘invoice’
The date of the invoice
Your company name, address and contact details
Your customer’s name and address
An unique (to your business) invoice number
A clear description of the products or services you’re charging for
The date the products or services were provided (supply date)
The amount of VAT, if applicable - we’ll talk more about this later
The total amount owed (cost + VAT)
When the customer needs to pay by
How the customer can pay, such as your bank details or a link to an online payment system
If you’re a sole trader, you need to include your full name, any business names you operate under, and an address where legal documents can be received.
If you are a limited company, you need to include the name of your company exactly as it appears on your incorporation certificate, and if you decide to include the name of any company directors, you need to include the names of all directors.
VAT invoicing requirements
If you’re a VAT registered company, there are additional HMRC invoicing requirements.
On a VAT invoice you need to include this information:
The word ‘invoice’
The date of the invoice
Your company name, address and contact details
Your registered VAT number
Your customer’s name and address
An unique (to your business) invoice number
A clear description of the products or services you’re charging for
The date the goods or services were supplied, if different from invoice date
The price per item, excluding VAT
The VAT rate per item
The total amount owed, excluding VAT
The total amount of VAT
The total amount owed (cost + VAT)
When the customer needs to pay by
How the customer can pay, such as your bank details or a link to an online payment system
Not sure if you need to issue a VAT invoice? HMRC say: “Only VAT-registered businesses can issue VAT invoices and if you’re VAT-registered, you must issue a VAT invoice whenever you supply standard rate or reduced rate goods or services to another VAT-registered person. Normally you must issue a VAT invoice within 30 days of the date you make the supply”
How to write and send an invoice
If you’re a Monzo Business Pro customer, you can create invoices and send payment links in our app or on the web in a few taps, so you spend less time billing your customers each week. Please note that Pro is £5 a month (with no minimum term). Ts&Cs apply.
If you’re not a Monzo customer yet, you can use a tool like Word, Excel or Google Docs/Sheets to write an invoice (there are templates available within these tools), or you can use an invoicing tool like Xero, Quickbooks or FreeAgent. Make sure to create a folder where you can save all your invoices, and name them with their unique invoice number, so you can find them easily.
When you’re ready to send your invoice, you can send it by email, post, or even attach it to a text message or whatsapp.
Invoice payment terms
Payment terms is a fancy way of saying you need to put conditions around your payments, like whether or not you want customers to pay in advance, or how long customers have to pay you back.
If you don’t specify a time period the payment is due within, the default is 30 days after the goods, service or invoice was received.
If your customer doesn’t pay on time, you can charge interest on the late payment, though you don’t have to. Read more about chasing unpaid invoices here.
This article is for information purposes only and does not constitute legal, tax or accounting advice. You should get professional advice if you need help to understand your legal rights or to manage your accounting or tax affairs.
Get better visibility and more control over all your money with a Monzo Business bank account. Less time on finances means more time for the important stuff. Find out more about Monzo business bank accounts. Terms and conditions apply
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