In the last edition, I referred to the sales invoice, and the main focus in this column will be to examine the importance and purpose of the invoice and to look at ways in which the design and content says something about your business. First and foremost, the invoice is a vital legal document. For example, you can sue an entity for an unpaid invoice but not for an unpaid statement of account.
Before that, let’s just take a quick look back at where the invoice came from and how it is defined. The origins date back to the 16th century from the old French word ‘envois’ (meaning ‘a sending’). During a sale of goods, a buyer and a seller enter into an agreement to transact business and complete a financial transaction, the terms of which will be recorded or documented with an invoice and a receipt.
In turn, the invoice is a document issued by a seller to a buyer itemising the goods supplied and the amount of money that is due from the buyer, according to the payment terms of the seller. It would also contain a number of critical pieces of information, which we shall discuss later.
The purpose of the sales invoice is to provide a record of the sale, the date it took place and the value of the transaction and communicate the requirement to pay for the goods. The objective of sending an invoice is to inform the customer of the amount which is payable and when and where to make payment. In addition, it documents the transaction as accounts receivable in the accounting system until it has been paid.
The invoice has become a culturally acceptable way of asking for money and, in certain cases, it can be a demand for payment. When paid in full, the invoice becomes a document of title and is also known as a bill of sale. It normally represents the presence of credit as the buyer has purchased the goods on a ‘buy now, pay later’ basis. If you sell a customer a product or service, you need to send them an invoice by law if both parties are registered for VAT.
Therefore, the design and content of the invoice is a major aspect and acts as a window into your business. It must immediately capture the attention of the buyer and should enable them to make payment within terms without having to contact you. The invoice often acts as the basis for the first and main contact between the buyer and the seller after the invoice has been sent.
You will need the invoice to contain all the legal, useful, and relevant information to make it practical, functional, and serviceable but it is also very good practice to add something unique and attractive to your invoice such as the colour scheme and layout, without going ‘over the top’.
Finally, what must the invoice include? The following should act as a checklist. It must clearly state the word ‘invoice’ and each invoice must be sequentially numbered. Your company name, address, contact details, bank details, payment terms, VAT number must be clearly displayed as well as your Company Registration Number, if you are a limited company.
You should incorporate the customer account number, their name and address, PO number (if relevant), invoice date, delivery date, a description of the goods or services provided and the VAT amount with the total amount displayed in the bottom right-hand corner.
Finally, to help with your cash flow, invoices should be raised and sent within 24 hours of providing goods or services; do not wait until the end of the month to produce your invoice.
Kevin Artlett FCICM ACII
First published in July/August 2023