You have started your new business and have delivered projects or goods to your clients or customers. You will now have to send them a proforma invoice for your work or the goods you sold.
But, how do you prepare an invoice? What information should you put into it?
Understanding the purpose of the invoice and its types will not only help you prepare a well-drafted one but help you get paid faster.
This blog explains all you need to know about an invoice, including its types, purpose, and tips to help get paid more quickly.
What is an Invoice?
An invoice is a bill that describes the services you provided or items you sold to the buyer requesting payment. It is a document that lists out the items you have charged to the customer and the value-added tax (VAT) charged, if applicable.
It is a crucial part of the bookkeeping and tax filing since it serves as legal documentary evidence of the goods sold or services provided.
So, why do you need to issue an invoice? Let’s understand the purpose for which invoices are issued.
Purpose of Issuing Invoice
A preliminary purpose of issuing an invoice is to inform your client or customer about his purchases and notify him to make the payment. Apart from this, the invoice serves the following multiple purposes:
– It helps you easily track your sales transaction.
– It enables faster recovery of your payment.
– It serves the purpose of record maintenance for accurate bookkeeping.
– It allows you to adhere to the law since issuing an invoice for the sales transaction is the requirement of the VAT law in the UAE.
– It ensures smooth tax filing since invoices evidence all your sales transactions.
Types of Invoices
Although there is one standard format to issue invoices to your client, you should prepare it considering the purpose behind issuing your bill. It will ease your efforts and help you get paid accordingly.
You can issue it either manually or electronically. Hence, based on their medium of issuance there are two types:
1- Manual/Paper Invoice
Manual/paper invoices are those that you prepare manually in an invoice diary or a spreadsheet on a computer and fill in the details from scratch.
2- Electronic Invoice
E-invoices are generated electronically using computer software or program that helps you fill in certain segments (address, invoice numbers, tax amount, amounts in words, etc.) automatically.
Invoice formats can be standard, tax invoices, simplified invoices, or proforma invoices. Based on the purpose of issuance, let’s learn which types of invoices.
1- Tax Invoices
It is a standard format that includes basic customer details and comprehensive details about the tax applicable. Such as
– The buyer’s name and address
– VAT registration number
– Your (seller) name and address
– VAT number
– VAT rate
– The VAT amount in words and numbers
– A label ‘Tax Invoice’ on the top
You must issue tax invoices if the law applicable to you requires you to issue tax invoices.
2- Simplified Invoice
Simplified invoices are those that contain minimum details of the purchase, and they do not include the VAT amount specifically.
3- Proforma Invoice
It is an estimated invoice sent to the buyer to request payment before delivering the goods or services. These invoices help you send your estimate, and the buyers can agree to the quoted price.
4- Debit/Credit Note
Debit/credit notes are sent when there is an adjustment, cancelation, or modification on the existing invoice. For example, you have already issued an invoice worth AED 500 for ten items. If the buyer returns two items, then you will have to issue a credit note
Tip: Never cancel or delete an invoice; instead, use debit/credit notes. It will help you keep track of your sales and streamline your accounting.
Now that we have covered the basics of issuing an invoice let’s understand how to issue it?
How to Issue an Invoice?
- Manual Invoices: You can have an invoice book that contains basic templates of invoices on each page to issue manual invoices to your customers. Many retailers used to issue invoices using this method.
- Printed Invoices: You can also prepare invoices in an excel or word file on your computer/laptop. Thus, you can issue these bills to your customers in printed or electronic format.
- Invoicing Software: You can also use invoicing software that will allow you to generate, issue, track and recover your invoices faster and more conveniently.
Get Paid Faster Through an Invoicing Software
Invoicing will be worth it if it can get you paid faster and more comfortably. When you issue manual and proforma invoices, they may get lost in transition, the details may not be clearly visible and you may miss certain details.
Hence, issuing invoices using the software could be the fastest way to automate invoicing for your business.
Advantages of Using an Invoicing Software
Let’s understand why you should use invoicing software to streamline your invoicing that will help you accurately record, generate, and store e-invoices in your software.
You can issue invoices automatically for which you just have to select a customer name and the amount for which you are raising an invoice.
You issue an invoice and forget; invoice collection, follow-up, and recovery are taken care of by the software through reminders and notifications.
Since the software uses the cloud to store invoices, you can generate, modify, and send invoices anytime from anywhere.
Invoicing software stores multiple invoicing formats, and hence, you can select from varieties of formats and customize your invoices depending on the client.
When you issue an invoice, you have documentary proof of your work, and it can help you get paid faster and safer. It can also allow you to offer multiple payment options to your buyers, such as card, bank transfer, etc.
Thus, the invoicing software can prove a one-stop solution for multiple tasks related to invoicing. For example, generation of invoices, issuance of invoices, storing invoices, and recovery of the invoices.