Imagine this – you’ve just started a freelancing business and you managed to land your first client. Hurray! Once you finish the work, they ask you to send them an invoice for your work so they can send over your payment.

You scratch your head in confusion, as you ponder what exactly is an invoice. Payment collection would be nothing without properly laid out invoices. It’s one of those financial documents that you will need to become savvy about asap if you are looking to keep going as a freelancer or entrepreneur. 

Keep reading to find out more about these important documents called invoices. 

What Is an Invoice? 

By definition, an invoice is an itemized document that records a transaction between a vendor and a buyer, or more specifically, your client and your business self. Invoices are usually sent over once the work gets completed so that the payment collection process can begin.

An invoice is not a receipt. An invoice gets used to collect payment from a customer, whereas a receipt is proof that the work got completed and payment was made.

Difference between an Invoice and a Bill

An invoice is also not a bill. The main difference between an invoice and the bill is that an invoice will usually lay out payment terms for goods or services provided, whereas a bill has to be paid immediately. Thus, they are quite different even though both are used to indicate how much a customer owes a seller and both are issued before payment has been made.

What Should an Invoice Include?

There are some items that every invoice should include as a matter of course. They are:

  • An invoice number – this helps you keep track of all the invoices you have sent out and which ones are overdue
  • A date – this helps you keep track of how long it has been since the invoice got sent out and how much time the customer has left to pay the invoice
  • Business contact information – this will help the customer keep track of the vendor they used, especially useful if they have many vendors to keep track of
  • Descriptions of goods and services – this is important so the customer knows exactly what they are paying for
  • Payment terms – how much time are you giving the customer to pay the invoice, typical is 30-60 days

Of course, you are welcome to add other items that suit you and your business, but these five items should be mandatory. Here’s an invoice template to get you started.

Payment Collection Begins with Sending Out Invoices

Invoices are an essential part of any business’s financial records. No payment collection process can begin without it. The first time you send out an invoice, it might feel a bit unusual and out of sorts, but you will soon get used to accepting payments using invoices.

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