What is a sales invoice (and what to include)
A sales invoice is a document issued by a business to outline the goods and services provided to a client.
Sales invoices serve as a record of sale and typically include:
- A description of the service provided or goods purchased
- The date that the service was provided along with the payment due date (typically within 14, 30, 60, or 90 days, though 30 is the most common)
- Instructions for how to pay
Once issued, a sales invoice becomes a legally binding contract that creates an obligation for the customer to pay. Because of this, it cannot be cancelled or removed from sales records.
In this article, we’re going to explain exactly what a sales invoice is and why you need them. We’ll also run through the ins and outs of creating a sales invoice and provide you with our very own template.
Top Tip: Before you issue your first sales invoice, it’s important to have a full understanding of how invoices work. To take a deep dive into the various invoice types, how to ensure your invoice gets paid on time and how to avoid common invoicing mistakes, read our guide to raising invoices and getting them paid 🌟
Table of contents
- Why are sales invoices important?
- How to create a sales invoice?
- What is the difference between a sales invoice and a sales receipt?
- What is the difference between a sales invoice and a purchase order?
- Wrapping up
Why are sales invoices important?
Sales invoices are important because they outline how much money your clients owe you—and cash inflow is the heartbeat of your business.
But besides simply tracking money owed, sales invoices also help you to:
Organise bookkeeping and accounting
This helps you stay on top of revenue that is expected (but not yet paid), and makes it easier to stay organised when following up overdue payments.
This is incredibly important, as 60% of SMEs regularly have their sales invoices paid late, which can lead to cash flow problems (not to mention lost valuable time spent chasing invoices).
Top Tip: While cash flow problems from unpaid invoices are stressors, you can preempt major problems by creating a cash flow forecast. This helps you to predict cash flow shortages, plan for loans and ultimately make better business decisions. To learn more, read our guide what is a cash flow forecast 💭
Gain insight into budgeting activities
An effective business budget helps you understand where to spend your money, and when, in order to align your spending with your needs and goals. Organising your sales invoices allows you to predict future cash inflow and make key business decisions based on that data.
For example, if your sales invoices indicate several large payments are due at the end of the month and you’ll have runaway to spend, you can plan to invest in a new piece of equipment that will improve efficiency.
Critically, this helps you avoid overspending on one-time costs if your cash flow doesn’t support them.
Adjust inventory and marketing strategies
A very useful feature of sales invoices is the ability to pinpoint your most popular products and services.
This knowledge is especially helpful when planning holiday sales, seasonal promotions, or special offers, as you can prioritise best sellers (and adjust your inventory to meet demand) to drive sales throughout that period.
Stay on top of tax
Maintaining an accurate record of your income and expenses is important for completing tax returns, but it may also come in handy in the event of an audit.
Your sales invoices will act as proof of revenue and satisfy HM Revenue and Customs (HMRC). More information on meeting invoice requirements can be found on the GOV.UK invoicing page.
Steer clear of legal issues
An accurate and punctual sales invoice will demonstrate that you have completed your end of a transaction.
It will also clearly indicate the goods and services delivered and the payment terms you agreed to with the customer. In the event of confusion, or even a lawsuit, it is vital to have this information intact as sales invoices are legal documents.
Top Tip: If you do run into legal issues, you should be aware of your options and how to move forward. To learn more about seeking legal advice & mediation, read our guide to chasing overdue invoices (the right way) 📌
How to create a sales invoice
When creating your sales invoice, it’s important to include as much relevant information as possible. This will ensure you avoid:
- Mixing up orders
- Delivery delays
- Failed payment attempts
In order to make sure everything goes smoothly, your sales invoice should feature:
- Contact information. Clearly display your business name, your customer’s name and company name, your business addresses, the address of the customer, and all other relevant contact information (e.g. email or phone number). This will limit the chance of delivery hiccups, and make it easy for your client to get in touch if they wish.
- The invoice date. Record the date you created your sales invoice. This will mark the start of a transaction and is important for bookkeeping purposes. By sorting your invoices by date, you’ll save yourself valuable time in the future when you need to refer back.
- The invoice number. Invoice numbers, also known as order or reference numbers, are used to track orders. They are usually sequential, for example, #00001, #00002. Invoice numbers are unique to each order, and come in handy when referring to previous sales and tracking individual orders.
- Payment terms. Payment details and terms are usually agreed between the buyer and the seller before the initiation of a transaction. They allow the buyer to clearly see the due date for the payment, and also outline the acceptable payment methods.
- A list of goods and services provided. Your invoice should clearly outline the list of goods and services delivered. Include a brief description of each item, the unit price and the quantity provided. The more information you provide, the more likely you are to be paid on time (and in full).
- The total amount due. Your sales invoice should feature the total amount due, including applicable sales tax and any discounts you may have agreed upon. If you are VAT registered and include VAT or sales tax, you must also include the net amount, the total amount of VAT, and the total amount due. This way, you’ll make it as simple as possible for your client to understand the costs and pay you.
Top tip: If your business is VAT registered, you will need to include additional VAT information on your invoices. Read our guide to find out what you must include on your VAT invoice 📚
Sales invoice template
As a business owner, you want your clients to see you as professional and organised, so make sure that your invoice is error free and accurate.
Here’s an example of what a sales invoice looks like:
Note: This sales invoice example includes VAT (also known as sales tax). You must include sales tax or VAT (along with the VAT rate) if you are VAT registered, but cannot include it if you are not.
We’ve also created a sales invoice template that you can use for free. To get started creating your own sales invoice today, download our template.
And if you’re a Tide member, you can create, customise, send, and manage your invoices directly from the app with Tide invoicing ⚡️
Top Tip: To learn more about how invoicing software and automation can help you to streamline your invoice process and avoid late payment, read our guide to the 11 best invoicing software solutions for your small business 💻
What is the difference between a sales invoice and a sales receipt?
While sales invoices and sales receipts both list the key details of a sale, they are issued at different stages in the buying journey.
A sales invoice is presented to the customer upon delivery of goods and services. It provides details of the sale including the terms of payment and the total amount owed to the seller.
When you issue a sales invoice to your customer, you are yet to be paid for goods or services.
A sales receipt, on the other hand, is issued after payment has been made for goods and services. It acts as a record of purchase for the customer and marks the completion of a transaction.
An everyday example of a sales receipt is the piece of paper you’re handed (or emailed if you go paperless) after making a purchase at a shop. You’ve already paid, so the receipt acts as a record of payment.
Top Tip: For a more in depth explanation of how sales invoices and sales receipts work and what situations they apply to, read our guide on the difference between an invoice and a receipt 🔍
What is the difference between a sales invoice and a purchase order?
While sales invoices and sales receipts are issued by the supplier to the customer, a purchase order is issued in the reverse order (e.g. by the customer to the supplier).
That’s because it is produced before a sale takes place and acts as a sales order rather than a receipt. This gives the supplier ample time to organise inventory and prepare accordingly for the requested delivery date.
A purchase order may include:
- A list of the goods and services the customer requires
- The desired delivery date of the goods and services
- The customer’s preferred payment method(s)
- Transport arrangements (if applicable)
Top Tip: Sales invoices and purchase orders are highly important to your small business. They are essential in order to organise your operations and stay on top of your accounting and bookkeeping. To learn more about the difference between the two, read our full guide to purchase orders vs invoices ✅
Sales invoices not only inform your clients about how much they owe you for goods and services, they also contribute to the well-oiled machine that is your small business.
They provide you with cash flow transparency, allow you to plan your spending in advance and act as proof of transaction in the event of communication and legal issues.
RODNAE Productions, published on Pexels