You finished the work. Your client is happy. Now there’s one more important step:
Getting paid.
Creating an invoice might seem pretty straightforward. Add the amount, send it to the client, and wait for the payment to come in.
But your invoicing process actually plays an important role in your bookkeeping, too.
A clear and consistent invoicing system can help you keep track of what you’ve billed, what customers still owe you, and which payments have already come in.
So let’s walk through what an invoice is, what should be included, when to send one, and the part small business owners sometimes miss: what happens after you hit send.
First, what exactly is an invoice?
An invoice is a document you send to a customer or client showing what you provided, how much they owe, and when payment is expected.
Think about a photographer who completes a branding session for a client but isn’t collecting the entire payment right then and there.
The photographer sends an invoice showing the service provided, the amount due, and the payment terms.
The important thing to remember is:
An invoice tells your customer what they owe you. It doesn’t mean you’ve been paid yet.
That’s one reason invoices need to be tracked after they’re sent.
And while we’re here, an invoice and a receipt aren’t quite the same thing. A receipt generally documents a payment that has already happened, while an invoice is used to request payment.
We’ll save the deeper invoice-versus-sales-receipt conversation for another day.
What should you include on an invoice?
Your invoice should make it easy for both you and your customer to understand what they’re being charged for and what happens next.
Depending on your business and the transaction, that may include:
- Your business name and contact information
- Your customer’s name and contact information
- A unique invoice number
- The invoice date
- A clear description of the product or service
- The amount due
- Any applicable sales tax, discounts, or other charges
- The payment due date or payment terms
- The payment methods or instructions available to the customer
Some of these details may seem small, but they can make your invoicing process much easier to manage.
Take invoice numbers, for example.
Imagine a client emails you three months from now and says, “I have a question about that invoice you sent me.”
Which one?
Having a unique invoice number gives both of you an easy way to identify the exact transaction you’re talking about.
Descriptions matter, too.
“Consulting services — $1,500” may technically tell you something.
But six months from now, will you remember exactly what that $1,500 covered?
A more specific description can make the transaction much easier for you, your customer, and anyone helping with your books to understand later.
Keep in mind that invoice requirements can vary depending on your business, transaction, industry, and jurisdiction, so there may be additional information your particular business needs to include.
When should you send an invoice?
There isn’t one invoicing schedule that’s right for every small business.
Depending on the type of work you do and your agreement with the customer, you might invoice:
- When the work is completed
- At specific milestones during a project
- On a recurring schedule
- Before work begins for an agreed-upon deposit or upfront amount
What’s more important is having a process you can follow consistently.
Because here’s what can easily happen when you don’t:
You finish the work on Tuesday.
You tell yourself you’ll send the invoice Wednesday.
Wednesday gets busy.
Then Thursday.
Then somehow it’s the following Monday and you’re thinking:
“Wait…did I ever invoice them?”
The work may be finished, but your invoicing process isn’t finished until the invoice actually goes out.
Building invoicing into your regular business workflow makes it less likely that billing gets pushed to the bottom of your to-do list.
What are payment terms?
Payment terms tell your customer when you expect them to pay the invoice.
You may have seen terms such as:
Due upon receipt: payment is expected when the invoice is received.
Net 15: payment is due within 15 days.
Net 30: payment is due within 30 days.
There isn’t one payment term every business should use.
What’s appropriate can depend on your business, your customer agreements, your industry, and how you manage cash flow.
The important part is being clear.
If you’re expecting payment within 15 days but your customer thinks they have 30, you’ve already created an unnecessary opportunity for confusion.
Your invoicing process should make the expectations easy to understand.
You sent the invoice. Now what?
This is the part I really want you to understand.
Sending an invoice is not the end of the process.
A basic invoicing workflow looks something like this:
Create the invoice, send it, track what’s outstanding, receive the payment, record the payment correctly, and reconcile.
Let’s say you send a customer a $1,000 invoice.
Until that customer actually pays you, that $1,000 is still money you’re waiting to receive.
In bookkeeping, you may hear the term accounts receivable, or A/R.
In simple terms, accounts receivable represents money customers owe your business for sales made on credit.
If you’re using invoicing software such as QuickBooks Online, your system can help you see which invoices are open, paid, or overdue.
That means instead of relying on memory, or scrolling through old emails trying to figure out who paid, you have a system for keeping track.
One bookkeeping note here: exactly when invoiced income appears on your financial reports can depend on whether your books are being viewed on a cash or accrual basis and how your bookkeeping system is set up.
So don’t assume that simply creating an invoice affects every business’s financial reports in exactly the same way.
When the customer pays, connect the payment to the invoice.
Now let’s say your customer pays that $1,000.
Great!
But there’s still a bookkeeping step that matters.
The payment needs to be recorded correctly and connected to the appropriate invoice in your bookkeeping system.
Otherwise, you can end up in a strange situation where:
Your bank account says the money arrived…
but
Your bookkeeping system still says the customer owes you $1,000.
That’s confusing for you and can make your customer balances inaccurate.
If you’re using QuickBooks Online, for example, invoice payments can be recorded against the customer’s outstanding invoice. Once properly recorded, the invoice status and outstanding customer balance are updated.
The exact workflow can vary depending on how you’re accepting and processing payments, but the principle is the same:
Don’t just track the money coming into the bank. Make sure your bookkeeping system knows what that money was for.
Why invoicing matters to your bookkeeping
Invoicing isn’t a completely separate administrative task that lives outside your books.
It’s part of the system feeding information into them.
A consistent invoicing process can help you:
- Keep better records of customer sales
- See which customers still owe you money
- Identify invoices that may be overdue
- Match incoming payments to the right customer and invoice
- Reduce confusion about whether something has already been paid
- Keep customer balances more organized
- Have clearer information when reviewing your books
And that’s really the bigger goal.
Not just creating prettier invoices.
Creating a process you understand and can consistently follow.
A few invoicing habits that can create unnecessary confusion.
If invoicing sometimes feels messy in your business, you don’t necessarily need an entirely new system.
Start by looking for a few common trouble spots.
Waiting too long to send invoices
You did the work. But sending the invoice keeps getting pushed to “later.”
If this happens regularly, consider making invoicing part of the process for closing out a project or setting a specific time each week to review anything that still needs to be billed.
Using descriptions that are too vague
You don’t need to write a novel on every invoice.
But give yourself and your customer enough information to understand what the charge represents.
Future you will appreciate it.
Not including a clear due date
Your customer shouldn’t have to guess when you expect payment.
Clear payment terms make expectations easier for everyone.
Sending invoices but not reviewing what’s still unpaid
Remember:
Sent does not mean paid.
Create a regular habit of reviewing your outstanding invoices so you know what’s still waiting for payment.
Receiving a payment but not applying it correctly
If the payment isn’t connected to the correct invoice in your bookkeeping system, that invoice may continue to appear outstanding.
That’s one of those small bookkeeping details that can create much bigger confusion later.
Create a simple invoicing routine
You don’t need to turn invoicing into another complicated system.
Try creating a simple routine:
- Create the invoice promptly based on the agreement you have with your customer.
- Review it before sending. Check the customer, services or products, amount, due date, and payment instructions.
- Send the invoice.
- Review outstanding invoices regularly.
- Follow up on overdue invoices according to your business’s policies and agreements.
- Record or match payments correctly when customers pay.
- Reconcile your accounts as part of your normal bookkeeping routine.
That’s it.
The goal is to make invoicing a normal part of running your business instead of another administrative task you’re trying to remember at 9:00 on a Sunday night.
Want to see how to create an invoice in QuickBooks Online?
Sometimes it’s much easier to understand something when you can actually see it.
So for this week’s Coffee With Your Sidekick Bookkeeper, I’m showing you how to create and send an invoice in QuickBooks Online.
We’ll walk through the process together so you can see where to enter your customer information, services, dates, payment terms, and other important invoice details.
[EMBED: Coffee With Your Sidekick Bookkeeper — How to Create and Send an Invoice in QuickBooks Online]
QuickBooks regularly updates its interface and features, so what you see on your screen may change over time.
The Sidekick takeaway
An invoice may look like a simple request for payment.
But it’s really one piece of a larger bookkeeping process.
Create it clearly.
Send it consistently.
Track what hasn’t been paid.
Record what has.
And make sure what’s happening in your bookkeeping system eventually agrees with what’s actually happening in your accounts.
Your invoicing process doesn’t have to be complicated.
It just needs to be one you can consistently use, and understand.
Need some help making sense of your bookkeeping system?
Maybe you’re already using QuickBooks but aren’t completely confident that everything is set up or flowing the way it should.
Or maybe you’re realizing you’re spending more time managing the books than you’d like.
You don’t have to figure it all out by yourself.
Your Sidekick Bookkeeper helps small-business owners create more organized bookkeeping systems, understand what’s happening in their books, and get the support they need to stay on top of them.
Learn more about working with Your Sidekick Bookkeeper →