Frugaling

An invoice, also known as a bill or tab is a record of purchase that enables a client to make payments for goods or services offered. Tabs provide a detailed description of the purchase such as parties involved, the quantity of purchase and prices of goods/services.

Invoicing, on the other hand, is the process of sending a bill to a customer once an item is shipped or a service is completed. This is a vital aspect of managing a business, and though it seems simple, it can be overwhelming. You can hire a bookkeeper to be responsible for sending bills and collecting payment if you can afford it. Otherwise, devote time in your schedule for billing.

Types of Invoices

There are several types of tabs that businesses can create and here are some of the common ones:

1) Standard – This type has a basic format and can be used in the same format for different business transactions and various types of clients (new, frequent, occasional clients). It contains all basic information found in any bill such as company name, name of the buyer, bill number, items purchased, etc.

2) Commercial – This is a special bill designed for documentation of any foreign trade like the shipment of machine parts from one country to another. It is used for customs declaration when items are crossing international borders. The commercial form comes with special transaction details such as country of origin, harmonized code for every product, carrier identification number and declaration to prove the authenticity of the bill.

3) Progress – It is used by companies performing projects that stretch over a long period. For instance, construction companies will use the progress technique since a project can take many years to be completed and is normally paid in installments.

4) Timesheet – This is a special type of bill mostly used by professionals whose services are based on the time taken to provide services. Such bills are normally provided by lawyers, consultants, and professionals whose services are more intellectual than technical.

5) Recurring – These are used for batch billing charges incurred on specific times such as bi-weekly or monthly.

Why Is Billing Very Important?

Creating and sending bills can be time-consuming. But it can help you effectively manage your cash flow. Besides this, billing is important for the following reasons:

1) Establish legal rights – It is your right to be paid for goods or services delivered. Documenting the items in a bill establishes your right to payment. If a customer fails to pay, you can use the contract and bills to sue them for owed payment in a court of law.

2) Great for record keeping – Bills enable you to keep track of when goods were sold, when projects were completed and the amount of money made. Bills also help you know which customers have not paid and the amount outstanding, allowing you to keep an eye on the status of your business.

3) Spell out what your customers are paying for – Bills break down what clients are paying for. This avoids any misunderstanding or conflicts during payment time. Clients easily understand what they owe you when you clarify the items or services you provided, increasing the chances of getting paid on time.

4) Audit evidence – There is always a likelihood of being audited by the IRS even when you do everything right. IRS audits check whether you properly report all income received during a financial year. Sequentially numbered bills provide more confidence that you have reported your income fully and correctly.

Documented bills can also be used to accurately file taxes since you will have all the information needed to calculate how much you owe in taxes.

5) Professionalism – How you handle the small things in your business shows a lot about your expertise. Clients will consider you a real professional when you bill them rather than ask for payment via informal agreements.

In today’s world where image is important, you won’t want to risk losing your customers because you use informal ways to ask for payments.

Preparing for the Invoicing Process

Before you start sending bills to customers, ensure you set up client accounts. Without setting up accounts, you may find that your billing system is inefficient and complex.

Here’s how you can prepare for the billing process:

• Get enough information from your customer before sending the bill. This includes contact details like company name, address, phone and email and their Company Registration Number.

• Consider using invoice software. The software automates your billing process, making it easy and more accurate. You can schedule both individual and batch bills to be generated and sent automatically to your customers. The billing software keeps track of all bills making it easy for you to know those that have been paid and those that are overdue.

• Offer convenient payment options. Besides payment by cheque, you can provide other payment methods like bank transfer or credit card. More payment options improve the possibility of getting paid on time.

Creating a Bill (What to Include)

It does not matter if you are a small business owner or responsible for handling bills for large companies, there are important components you should never overlook.

a) Professional header – The header appears at the top of the bill, and it consists of your business name or full name if you are self-employed. It also includes contact details like phone number, email address and mailing address under your business name.

b) Customer’s contact details – the client’s contact information is placed below the header. This includes the recipient’s name, phone number and address.

c) Additional information – These include the bill number, billing date, payment due date and the payment options available. Any other details should be written clearly.

d) Itemized breakdown of goods or services – This section of the bill is divided into five columns that contain the services provided or goods supplied, supply date, quantity, unit price and the subtotal amount you are charging for the items or services. Calculate the total and write it clearly after deducting discount and adding delivery fees, sales tax and other fees where applicable.

e) Terms and Conditions – The terms and conditions are written below the total amount. These may include return policy, the due date, and charges incurred for late payments.