The Ultimate Guide to Invoicing: Best Practices and Tips (2024)

You have sold an item or rendered a service – it is time to send your first invoice! This guide outlines the easy steps to creating and sending invoices and demonstrates how to manage and send invoices efficiently.

Years ago, invoicing was a tedious and time-consuming process. It used to involve manually creating and printing out invoices and then sending them via postal mail – often resulting in lost invoices and frustrated business owners.

Today,  invoicing is much easier and more efficient.

This guide provides you with a comprehensive (and updated) overview of invoicing and takes you through each step with ease. We will show you how to create and send invoices, how to get paid on time, and even how you can use functionality in your invoicing software to automate and streamline the process.

Before we dive in, let’s go over the basics 👇

Introduction to invoicing

Invoicing definition: What is invoicing?

When you run a business, you offer goods or services to your customers. At the end of the day, you want to receive payment for the work you have completed. This is where invoicing plays a crucial role.

Invoicing is the process of creating a bill for goods or services you have provided to a customer. It is a way of requesting payment for the work you have done, and it helps you keep track of your income.

An invoice typically includes details such as items or services provided, the total amount due and payment terms.

The importance of invoicing

Invoicing is a crucial aspect of running a successful business. Among many other reasons, invoicing will help you:

• Keep track of finances: By generating invoices for every sale in your business, you maintain a comprehensive record of all incoming funds, which is essential for both accounting and tax purposes.

• Build trust with customers: Sending a clear, accurate and professional-looking invoice, demonstrates your commitment to your business and to maintaining the relationship with your customers.

• Ensure timely (or even early!) payments: Sending an invoice gives you a great chance to clearly communicate when and how you want to get paid. If you send the invoice in a digital format, such as an e-invoice, you can reduce the time to payment by 7 days compared to other invoicing formats.

• Resolve misunderstandings: If there are any questions or disputes about the goods or services provided, invoices act as a reference that can help you resolve any misunderstandings.

How to make an invoice

When it comes to creating invoices, there are mainly three options to consider: Templates, invoice generators, and online invoice software.

Invoice templates (such as this one) allow for customisation to fit specific needs. Another benefit is that they can be used in software that you have previous experience with, easing the process of getting started with invoicing. A major limitation, however, is that invoice templates make the invoicing process unnecessarily complicated, as invoices are not sent automatically and manual calculation may be required.

Online invoice generators are another alternative, offering a faster invoice experience. The downside, however, is that they often lack vital features such as invoice storage and distribution of late payment reminders. Most invoice generators do not allow you to tailor the templates to your needs, making it an effective but limited method for creating invoices.

Invoicing software (like Conta’s free invoicing app) is the most efficient and practical option for small business owners. With invoicing software, fields like the invoice number, company information, and date are automatically filled out, simplifying the process. Additionally, invoicing software often includes smart automation features such as recurring billing, making it a good option for small and midsize businesses.

Create and send invoices for free

Free Invoice Template vs. Free Invoicing Software

In the following table, we compare and contrast invoice templates and free invoicing software:

Features	Template	Conta
Cost	$0	$0
Printable	✔	✔
Email to clients	✔	✔
Track sales and sales tax for accounting	✖	✔
Unlimited invoicing and estimates	✖	✔
Send automatic payment reminders	✖	✔
Recurring invoicing	✖	✔
Track invoice status	✖	✔
Add collaborators	✖	✔

Sign up for our free invoicing software →

Invoice Formatting: This should be included

A well-designed invoice clearly communicates the necessary information to the recipient and ensures prompt payment. Here are the four key components of an invoice:

1. Invoice header

At the top of an invoice, there are several key pieces of information that must be included. 

Firstly, make it clear that the document is an invoice by including a large and bold title with the word “INVOICE”.

Additionally, you should make sure that customers know who the invoice is sent from by including your company information, including contact details in case they have any questions. The same goes for customer information – make sure that the invoice is for them!

Lastly, it’s important to include a unique invoice number, invoice date, and due date.

2. Item description

The item description section is an important part of the invoice as it provides a clear overview of the goods or services that have been provided to the customer. Each item should be listed in great detail, together with the number of products or services delivered, the unit cost, and the total amount owed.

To ensure that the customer fully understands what they are being charged for, it is crucial to precisely and concisely define each item. This part should contain specific product numbers, names, descriptions, and any relevant additional information like discounts, taxes, or shipping costs.

A clear item description section can help to establish confidence with the customer because it allows them to understand exactly what they have purchased and how much it costs. Additionally, it might make it simpler for the consumer to make any necessary payments and reconcile the invoice with their own records.

3. Payment terms

Payment terms are a key component of an invoice as it sets the expectations for when the payment for goods or services rendered is due.

It should clearly state the payment due date and preferred method of payment. It is also important to include any additional information such as late payment fees, so there are no misunderstandings between you and the customer.

Research has also found that some words and phrases lead to earlier payments than others. Invoices that include a “thank you” in the payment terms section, for instance, get paid almost 90 % faster. Using “please” has similar results.

We also suggest that you inform clients of late payment fees, to further incentivize timely payments. In sum, having clear payment terms helps ensure timely payments and can improve your cash flow.

Here is an example of an invoice created in Conta’s free invoicing software:

Types of invoices

Sales invoices are the most widespread type of invoices and are used to request payments from clients. Besides sales invoices, there are other forms of invoices, such as:

• Pro forma invoices: A pre-invoice used to confirm sale details before goods or services are provided.

• Recurring invoices: Invoices that are issued at regular intervals, such as monthly or yearly.

• Past due invoices: Invoices that have not been paid on time and are being sent again to customers (sometimes with additional charges).

• Credit invoices: Negative invoices that reduce what a customer owes the business, mostly used to correct an error or when goods are returned.

Common mistakes to avoid in invoicing

When it comes to invoicing, there are a few pitfalls that you need to avoid to ensure a smooth and efficient process. Here are four of the most common invoicing mistakes to avoid:

Not sending invoices promptly: One of the most important things to keep in mind when invoicing is to send invoices promptly after a good or service has been delivered. If you wait too long to send invoices, it can make it more difficult to collect payment (which is bad for the financial health of your company) and cause confusion for the customer (which might lead it not to do business with you again).

Invoicing the wrong customer: People hate being invoiced for services they have not received! Double-checking customer information is crucial to ensure invoices are being sent to the right person. This will help you maintain a professional image and avoid delays in payment.

Neglecting to follow up on overdue invoices: Following up on overdue invoices is a critical step in the invoicing process. If you do not follow up with customers, they may assume that the invoice has been forgotten and not paid in a timely manner.

Relying on manual invoicing: Make sure to use an invoicing software that allows you to create and send invoices in an efficient manner and automate the distribution of payment reminders. Naturally, we recommend Conta’s free cloud-based invoicing system.

Invoice automation: The secret to streamlining your business’s financial management

With the advancements in technology, invoicing software has come a long way in the past years. Today, businesses can streamline their invoicing process by utilising these tools, which can help with creating, sending, and following up on invoices automatically.

This not only saves time but also eliminates the possibility of human error, resulting in more efficient and organized billing processes.

Here is a simple and straightforward way to put your invoicing on autopilot:

1. Choose an invoicing software. There are many invoicing software available in the market, with different features and pricing plans. Take the time to research and choose the one that suits your business needs.
2. Set up automatic invoicing for your recurring clients, or create and send invoices with a few clicks. You can also schedule invoices to be sent at a specific time and date.
3. Activate automated payment reminders and make sure that customers are automatically notified when an invoice is not paid on time.

What can I do when invoices are not paid on time?

Collecting invoice payments should be a smooth and easy process. Unfortunately, clients do not always pay on time.

If a client is refusing to pay you or is unable to do is in accordance with the payment terms in your invoice, you should do the following:

1. Send a payment reminder

Send a gentle reminder to the client. In most cases, a polite and professional reminder will prompt the client to pay their overdue invoice.

In Conta, you can set up automated payment reminders. This is a feature that sends out automated notifications to your customers when their invoice is due, helping your business to get paid faster.

2. Ask why the client is not paying

In some cases, there is a rational reason for why a payment has not been transferred. Therefore, it might be beneficial to call your client in a professional manner to develop an understanding of the root cause, helping you find a solution.

If the client is unable to pay the entire amount owed, for instance, you can set up a payment plan. This way, you can get partial payments over time and avoid taking further action. 

3. Escalate the situation

If the client is unwilling or unable to pay, you should consider escalating the situation. This can involve sending a formal letter of demand or starting legal proceedings.

4. Hire a debt collection agency

If all the above steps have failed, you might need to hire a debt collection agency to help you recover the owed amount. They can handle the matter professionally and increase the chances of receiving payment.

Trends and innovations in invoicing

Invoicing has come a long way in the past decade, with the majority of invoices now being created and sent electronically. In some countries, electronic invoicing formats are in fact required by law in the public sector.

In the years going forward, we expect that the digitization of invoicing space will develop even further. More invoices will be sent in standardised electronic formats and an increasing number of businesses will offer one-click mobile payments.

We also expect that mobile invoicing and the use of application integrations will take off. This enables employees and self-employed business owners to create invoices on the go – sending them immediately after a product or service has been delivered.

Another recent development, which might advance in the years to come, is the use of blockchain technology to make accounting more reliable. Instead of the traditional double-entry system, companies are now testing practices in which all transactions are simultaneously posted in three places – between the two parties involved in the transaction and a separate, impartial recording entity.

It’s likely that the landscape of invoicing will shift more as technology advances. To ensure businesses remain competitive and offer their clients the finest services, businesses should keep up with current developments and advances.