For many self-employed individuals, having stable finances and reliable cash flow are integral to being able to maintain their small business or side-hustle. For this reason, invoicing is probably one of the most important things to master.
An invoice is a document issued by a business owner to clients that outlines charges of goods produced or services rendered. Essentially, an invoice acts as a legal document, establishing an agreement to pay between the buyer and seller. It details the charges, establishes an obligation to pay, and can be issued before or after a service is completed.
Invoices are crucial for maintaining solid financial and accounting records, and are especially important to small businesses. For the most obvious reason, they are important because you need to invoice clients to get paid. Invoices act as a legal agreement between a seller and buyer and establish a formal intent to pay by creating a sales record that cannot be erased or cancelled.
If you are a VAT-registered business, you are also legally obligated to invoice clients and keep record of your financial history.
The information to include in an invoice varies based on the nature of the business or services. However, here is some core information that should be included in an invoice:
If you have a VAT-registered business, you will also have to include the following details:
Depending on how you go about it, there are several ways that you can create invoices. You could make one manually following templates available online and send them out via mail or email. However, this can be time consuming and you could make mistakes or even forget to send them out. If you do choose this option, it’s crucial to set aside some time each day or week to catch up with your invoicing and make sure you keep solid records.
A much easier option is to use accounting software and services like ANNA Money and Xero. These generate invoices for you and also take away the hassle of chasing payments. These programmes are great because they can:
Although these kinds of software are very useful, it is important to note that they can be costly. For a small business, justifying the financial cost of getting a premium accounting service can be difficult, so pricing is something to keep in mind.
One of the most frustrating parts of being self-employed is having to wait on customers to respond to invoices and pay you. But though it can be awkward hounding customers for payment, the following tips can help ensure that your invoices are paid on time and you get the money you’re owed:
Keep in mind that under the Late Payment of Commercial Debts Act 1998, small businesses are permitted to charge up to 8% interest plus the Bank of England base rate on late payments. But you must make this clear to your customers in advance of starting the work to avoid any disputes.
| Response | Yorkshire and the Humber | West Midlands | Wales | South West | South East | Scotland | Northern Ireland | North West | North East | Greater London | East of England | East Midlands |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| No | 89.41% | 85.22% | 89.39% | 86.96% | 84.77% | 84.21% | 79.17% | 86.78% | 85.71% | 68.52% | 86.21% | 87.5% |
| Yes | 10.59% | 14.78% | 10.61% | 13.04% | 15.23% | 15.79% | 20.83% | 13.22% | 14.29% | 31.48% | 13.79% | 12.5% |
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