How to create an invoice
How to create an invoice
Learning how to create an invoice can help your business get paid on time.
In the UK, almost half of invoices (46%) sent by freelancers and small businesses are paid late.
These late payments can severely disrupt your cash flow, especially if you run a small business with a tight budget.
So how can you ensure you get paid on time for the sale of your products or services?
By sending accurate invoices.
Creating an invoice properly not only allows you to get paid on time but also helps you track your income and keep up-to-date financial records.
Further, by documenting the products and services provided along with their prices, invoices help you stay organised and get paid fairly.
In this article, we’ll introduce a nine-step process you can follow to create your own invoice (the right way). We’ll also cover some tips for ensuring you get paid on time and what to do if you don’t.
Top Tip: Even if you’ve followed a systematic and effective process to create your invoice, there are several things you should keep in mind to ensure you get paid on time. Learn more about how to avoid common invoicing mistakes💡
Table of contents
- Step 1: Start with a professional template
- Step 2: Add company details
- Step 3: Identify your invoice
- Step 4: List the delivered products or services
- Step 5: Specify the total amount due
- Step 6: Mention all the dates
- Step 7: State your payment terms
- Step 8: Add VAT details (if applicable)
- How to get paid on time and what to do if you don’t
- Wrapping up
Step 1: Start with a professional template
Making invoices on your computer is easy if you have the right invoicing software tools or templates and familiarity with the invoice creation process.
If you don’t have any of the above, creating a new invoice with all the necessary elements from scratch can be time-consuming and confusing (though certainly not impossible).
You can create a fully functional invoice in minutes using Tide invoicing. It’s absolutely free for small businesses, and you can create and customise invoices on the go using Tide’s mobile app.
For anyone looking for a quick and easy way to make professional invoices without a dedicated tool, it’s a good idea to use ready-made invoice templates.
The biggest advantage of using an invoice template is you don’t have to worry about the design.
Instead of investing time in creating a layout, adding headers and tables, choosing the right fonts and adjusting the line spacing, you can focus on inputting correct information about your business, client and transactions.
This can help you save hundreds of hours in the long term.
Using an invoice template with placeholders for all the essential information is also a great way to ensure you don’t miss anything, such as the unique invoice number or payment terms.
There are plenty of resources available to help you find the right invoice template for your business. For instance, you can browse through the built-in invoice templates in Microsoft Word or Excel (Windows users) or Pages (Mac users) to get started.
If you aren’t yet a Tide member and are looking for a quick solution, you can use our spreadsheet invoice templates instead 🎊
Step 2: Add company details
Once you’ve chosen an invoice template, you can now begin to add your information.
First, you must add the company details for both your business and your client. This includes the following information:
- Your company name
- Your company address
- Your contact information (business name, phone number, email)
- The client’s company name
- The client’s company address
- The client’s contact information
Make sure to double-check all the information, including your client’s specifics. If you add any incorrect details, such as a wrong address, it could lead to unnecessary delays in payment.
Brand your invoices to make them look more professional and recognisable. Add your company logo at the top, and incorporate your brand colours and fonts into the invoice design.
Top Tip: Speaking of brand colours, it’s important to be consistent with your branding across all of your assets. That’s because consistency connotes familiarity, so sending an invoice with an old logo or mismatched brand colours may cause confusion. To learn more about branding, read our 7-step guide to how to build a brand that customers love 🔥
Step 3: Identify your invoice
The UK government encourages business owners to add a unique identification number to their invoices, which is useful in several ways.
The unique identification number, also called the invoice number or invoice ID, helps businesses and clients keep track of all their invoices, including those delayed or lost.
There’s no one specific way to mark your invoices; some businesses prefer using an increasing number sequence, such as 00045, 00046, 00047 and so on.
Others prefer incorporating letters into their invoice IDs, such as A0028, T1076 or P0075.
Invoice IDs with letters are especially helpful when distinguishing between clients or invoice types.
For example, invoice IDs beginning with the letter A could identify standard invoices, while invoice IDs beginning with the letter T could denote tax invoices.
Assigning a unique invoice ID can also help businesses calculate the total number of invoices they’ve sent out during a specific period, along with the average order value.
Pay attention to the size and placement of your invoice ID. The best practice is to place your invoice ID at the top right or left corner of your invoice, where it’s prominent and hard to miss.
You can see the invoice number placement in our example invoice below:
Step 4: List the delivered products or services
The next part is to create an itemised list of the products and services for which you are invoicing.
In this section, you should be as thorough as possible. Creating a table, for example, is an excellent way to organise the delivered items.
This item table could include the following information:
- Serial numbers
- Names of the items delivered
- The quantity of items delivered
- A short description of each item
- The cost of each item in the list
- The hourly or day rate
Try to keep your itemised list simple and straightforward. You don’t want to add too many columns or text, which may confuse your client and cause issues with timely payment.
Step 5: Specify the total amount due
Once you’ve added the list of delivered items to your invoice, the next step is to state the total amount that’s due from your client.
This step may be as easy as adding up the costs of each item and noting the total amount due at the bottom. But sometimes, invoices involve discounts and prepayments, so you need to make those adjustments to the total amount owed.
The best way to do this is to display a net total (or subtotal) and then a final total.
For example, adding up all the individual costs may come out to be £4,500 (net total). But since you’ve agreed to offer a 7% discount to your client, the total amount you’ll note in the invoice would be £4,185 (final total after discount).
If you’re applying a discount to the total amount due, make sure you make it clear in your invoice. To do this, add the discount as a line item so that it’s impossible to misunderstand the difference between the net and the final totals.
It’s also a best practice to bold the total amount due so it’s prominent and easier for both you and your client to find.
You can see this in action on our commercial invoice example:
Step 6: Mention all the dates
Make sure your invoice includes the following dates:
- Invoice date. This is the date you create or send the invoice. It usually goes at the top of your invoice and helps you and your client keep track of when a particular invoice was issued.
- Supply date. This is the date you delivered your products or services. The supply date can be different for each line item, and you can also choose to have a separate column in your itemised list to specify these dates.
- Payment due date. This is the payment deadline. If you haven’t received your payment by the due date, the payment is considered to be late.
Remember to add to your invoice all of the dates mentioned above to avoid any misunderstandings or delayed payments. Including a due date, in particular, gives a clear indication of when you expect to be paid.
Step 7: State your payment terms
While payment terms are usually predetermined between businesses and clients, it’s always recommended to mention them again in your invoices.
Payment terms include any information regarding invoice payment, from the available payment options to any applied discounts or penalties.
When it comes to payment methods, it’s a good idea to offer multiple options to make it easier for clients to pay you.
Consider offering some, or all, of the following payment methods:
- Bank transfer
- Debit or credit card
Offering online payment methods can increase your chances of getting paid on time, as they provide clients with quick and hassle-free options.
Some businesses offer additional discounts on payments made earlier than the due date. This can work as a motivator for clients to pay you as quickly as possible.
Similarly, you can also add penalties or surcharges on overdue payments to prompt clients to pay you on time.
All of the above information should be clearly stated in your agreed payment terms. If you’re offering discounts or adding penalties, you should mention the exact details in your invoice.
Step 8: Add VAT details (if applicable)
VAT invoices are different from standard invoices in that they require more information, such as:
- The VAT registration number
- The unit price for each product or service
- The rate of VAT charged
- The total amount payable excluding VAT
There are three types of VAT rates you can use: standard, reduced and zero. Make sure you modify your invoice according to the rate you decide you use.
Here is an example of a full VAT invoice:
Top Tip: VAT-registered businesses are required to follow a different process for recording and storing invoices than other businesses. They also need to keep an eye out for requirements related to cash accounting and margin schemes, exemptions and potential penalties. To learn more, read through our guide on VAT invoice requirements 💡
How to get paid on time and what to do if you don’t
Following an effective process for creating an invoice can increase your chances of getting paid on time.
But sometimes, even the most thorough invoices can get ignored or overlooked.
This can happen for various reasons, and most of them are related to what you do after you send out your invoice.
Here are some common tips to help you get paid on time:
- Be consistent. Sticking to a consistent and predictable invoicing schedule increases your chances of getting paid on time. Plus, it makes your business look more professional, which prompts clients to take your invoices seriously.
- Follow up regularly. After you send out an invoice, make sure you follow up multiple times to remind your client about their due payment. Following up in a professional and non-intrusive way can prevent clients from forgetting about your invoice. Of course, manually following up is a time suck, so consider using an invoice system that automates invoice chasing 🌟
- Develop an effective invoicing process. This may seem like a lot of work, but once you have a proper invoicing process in place that specifies how to create and send invoices, it will be much easier to stick to a schedule, follow up with clients and take appropriate measures in case of non-payment.
- Proofread your invoice. There’s always room for human error, so make sure to proofread your invoices before sending them out to catch any typos, wrong addresses, miscalculations and incorrect dates.
Top Tip: To create an invoice process for your business, you have to go through a number of stages to actually get it right and working, such as setting up an invoicing schedule or determining the best payment methods. Learn more in our detailed guide on how to streamline your invoice process 💡
Now, let’s say that you did everything right, but a client still hasn’t paid you on time.
In this case, there are two things you can do.
What can I do if a client still hasn’t paid me on time?
- Cut off future work. If a client fails to make their payment even after you’ve followed up and sent them repeated reminders, you may want to cut off any future work with them. This may sound drastic, but it might be necessary if non-payment has a significant impact on your business.
- Sell your invoice. Another option is to sell your invoice to an invoice financing firm. These firms may be willing to take over the responsibility of chasing down your invoices in return for a fee. This is a good option if your client doesn’t normally delay their payments and if you’re in immediate need of money to maintain a steady cash flow.
Top Tip: Invoice financing is a fast and affordable way to prevent outstanding invoices from affecting your cash flow. Learn more about how to sell your invoices to a lending firm in our complete guide to invoice financing 💰
There are also other, more strict ways to get paid for your invoices, such as adding a late fee, mediation or legal action, but these may cost your business considerably more money than other options. You need to decide whether it’s worth it to involve a third party or not. To learn more about your options, read our guide to how to chase an overdue invoice (the right way).
Late payments can disrupt a business’s cash flow, which can force small businesses with limited cash flow to go out of business.
Make sure you follow the steps above to create a thorough and effective invoice to increase your chances of getting paid fairly and on time.
Photo by Karolina Grabowska, published on Pexels