Common Invoice Types Every Business Should Use

Invoices play a major role in every Business payment and transaction. They are like the backbone of your small business. Without smooth cash flow and accurate financial records, everything may fall apart faster than you say, “accounts payable.”

By understating the types of invoices, you can make records of the goods and services purchasing records, the transaction details, total due amounts, and payment methods. It acts as a detailed financial report for your business. Invoices serve as legal Records for your business.

There are many invoices, but people don’t know how to use and handle them. Here are some useful tips on how to choose the right invoices for each situation.

Different types of invoices are listed under the 3 main categories:

1. One Time Invoices
2. Project Invoices
3. Invoice Memos

One Time Invoices

Proforma Invoice:

A Proforma Invoice is an introductory document also known as an estimate or quote that outlines details of transactions between a buyer and seller before the order is finalized. It contains the description and approximate cost of the product or service, the expected delivery or work completion date, and other details.

It is essentially a good faith agreement shared from seller to buyer, using this the buyer will know the approximate details of their requirements and help to analyze if the estimation will suit their budget.

For Example, if payment is required in advance to ensure financing is fixed before you manufacture goods or supply a service, a proforma invoice can be used to offer the details of the upcoming transaction.

Sales Invoice:

A sales Invoice is also known as an accounting document sent from the seller or service provider to the goods or service purchaser. And it is the classic version of invoices, it contains exactly what your client needs when they ask you to send an invoice. Sales invoices are mainly used for requesting payment from the client after delivering goods or services.

It includes all essential elements of an invoice such as

• The price details
• Contact Details
• Terms and Conditions
• Email etc.

So, this sales invoice has the potential to act as legal proof and documentation of the transactions made between the seller and the client. This is especially used in a large number of purchases.

Overdue Invoice:

An Overdue Invoice is used to be sent after the due date of the sales invoice, in case the client has not made the payment before the due date as it is mentioned in the sales invoice. Along with the components of a sales invoice Overdue invoice also includes a penalty fee for late payment.

Suppose when the buyer Fails to make the payment on the due date, then the sales invoice becomes an overdue invoice also the buyer becomes the defaulter. In such cases, if there is no action from the buyer side even after proper notice and remainders, then you can go for taking legal action with the proof of sales invoice which is already sent to the client.  

In other critical situations, you have another option to write off the invoice. But mostly, it is not advised to write off invoices as it may affect the cash flow of your business.

Total Invoice:

Total Invoice contains the amount which is the sum of all the charges in the invoice, including the cost of the product or services, taxes and additional fees. It is also known as a consolidated invoice and this invoice comes in handy if you’re working in chunks.

This invoice can help both buyer and seller by clearing and confirming the exact amount for payment and also it avoids confusion and makes it easy for the client to make payments instead of paying all the sales invoices separately.

Project Invoices

Retainer Invoices

A retainer invoice is a document that the business owner sends to the client to collect the upfront payment for the product or services. Sending advance payment makes both the sellers and the buyers or service providers assured that getting the work and payment will be done on time.

In some cases, this pre-payment made by the client provides access to the services as required Soon.  For example, it’s like we can book a hotel reservation that we make several days before our actual visit to reserve tables.

Retainer invoices are mostly used in common business such as law firms, accounting firms, and consulting firms.

Interim Invoices:

Interim invoices are also known as progress invoices or progress bills, which contain invoice with a partial amount of an order. It is the small chunks of invoices or intermediate invoices that we send to the client to finish a small portion of the project.

For example, while constructing a house you need to make payments in chunks as your house gets built in Step by step. You need to pay for the electrical works, painting works, and other small works, and finally, you will pay the remaining amount when the builder or contractor sends a Total invoice.

Timesheet Invoices:

Timesheet invoices are a tool that businesses use to charge customers which are hourly based on work on a project. Most freelancers who charge on an hourly basis use these timesheet invoices, this is a good choice for them. Timesheet invoice provides the number of hours worked by the service provider may be differentiated by the rate they charge per hour.

Some essential elements included in Timesheet Invoices are:

• Name of the task
• Number of hours worked
• Rates for hour
• Project Start and End date
• Admin Fee Etc.

Invoices Memos

Credit Memo:

Credit Memo is shared by the seller or service provider to lower the amount owed by the customer. If there is any mistake in the invoice, and the seller owes some money to the buyer, then the buyer sends a credit memo as an acknowledgment. It can you used in many situations as per the terms and conditions mutually agreed such as:

• The order is cancelled by the buyer
• If there is any damage to the product the buyer wants a refund
• Buyer not satisfied with the client’s offer
• Discount for early payment.
• Or else it was just an error made by the seller while creating the invoice.

Debit Memos

Debit Memo is a tool of communication and conveys the adjustments made in the invoice, it is a document that shows a customer of a detection or debit to their account. If the buyer owes extra money to the seller apart from the money mentioned in the sales invoice. It is mostly used for the following reasons:

• Billing Errors
• Additional Charges
• Bank Fees
• Product Return

Mixed Invoice

A mixed Invoice is contains both debit and credit invoices. It is used to make multiple adjustments to an original invoice. It includes the money owed by the seller and the buyer each other. So, the final value in the voice can be either negative or positive. If it is positive, then the buyer owes money to the seller.

For example, a mixed invoice might show charges for additional services and credits for returned items all complained in one document.

Conclusion

Nowadays Invoicing is an essential part of running a business, even freelancers and large corporations use solid invoice systems to ensure on-time payment, maintain healthy cash flow, and avoid legal complications. If you have knowledge of different types of Invoices, payment terms, and tools then you can be able to streamline the invoicing process which Leads to growth in your business.

If you are looking to improve your existing invoicing practices, then points to remember

• Be clear in your invoice to avoid mistakes and confusion
• Use professional Invoicing software or tools to save your time and money.
• Ensure compliance with legal needs to secure your business and financial interests.