Invoices are often shared in businesses. Whether you are doing business with your local laundry service or with your ERP solution vendor, you deal with invoices.
Many may have an idea of what is an invoice. Yet, do you know the importance of generating invoices in a business?
Invoices play an essential role in every business. Here we share what exactly an invoice is and its purposes.
What is a sales invoice?
A sales invoice is a document generated by the seller for the buyer to collect payment of a product purchased or serviced offered. An invoice is given when the buyer has fully paid for the products purchased or the services received. However, when you are working with a freelancer or a small business, you might receive the invoice before the payment.
Nowadays, most of the business generate invoices electronically. However, you still can rarely witness manually written invoices in some small companies.
Usually, an invoice includes the following details.
- Invoice number
- Date of service rendered
- Date of sending an invoice
- Contact numbers and name of org/seller
- Name and contact of buyer
- Terms and conditions
- A line detailing each product or service
- Cost per unit of product
- Tax rates
- The total amount owed with currency
There are 5 types of invoices in use. They are,
Pro forma invoice
A pro forma invoice is a document that generates to states the commitment of the vendor to deliver goods and services to the buyer for a price agreed upon by both parties.
This type of invoice is used to declare customs in the sale of goods to be exported to another country.
A credit note is another commonly used invoice issued to the buyer during an event of a return due to a damaged or shipping mistake.
A timesheet invoice is a document generated when the fees are charged for the work done or the service delivered on an hourly basis.
This type of invoice is used when a customer makes an advanced payment for a product or a service. The paid amount is then deducted from the final payment upon delivery or completion of work.
Used only for recurring transactions like subscription fees, recurring invoices are issued to the customer by the seller.
Benefits of sales invoices
Whether you are the buyer or the seller, an invoice provides you with information regarding the financial history of your company.
It let you know how much you’ve spent on your business purchases if you are the buyer. On the other hand, the document gives vital information regarding revenue generated in your business if you are the seller.
These are all vital information you need to have an accurate record of for the bookkeeping process because invoices help you determine the sales and expenses of your company with accuracy. Plus, the net profits offering reliable records on each sale and each loss. Thus, the document plays a vital role in the bookkeeping process.
Moreover, invoices also help you keep track of your payments. It will let you know how much money you owe and how much money you owed to vendors. This way, it will be easy for your accounting team to maintain your books and financials easily.
Another purpose of an invoice is to prove the information you provide in the tax forms is correct.
Invoices are considered as the number one way to back up your details regarding your revenue and expenses. If you are the seller, invoices, help you provide solid proof on the number of products you sold to the buyer. For buyers, the document provides evidence of the purchases he or she has made, which usually deduct during the sales process from your gross sales revenue.
Invoices are the number one document tax auditors often asks to verify tax claims. Thus, it’s significant that your business generates accurate and legitimate invoices for all your sales and receives for all your purchases. Plus, make sure you establish and well-organized system for invoice management so you won’t have to experience much hassle during the tax season.
It is common even for huge brands to receive requests for refunds.
Sometimes, the buyer may receive a product with a defect due to an error during the shipping process. They might not have received the right size or the right model. Or maybe he or she is not happy with the product.
And when you need a refund or credit, the invoices for the product can be very helpful. They provide proof that the buyer purchased the product from the seller to whom you are returning it to. This is a proof the sellers can’t ignore if your claim is agreed with the terms and conditions of the purchase.
Additionally, the sales invoice should mention terms and conditions for product returns, such as allowable refunding period and refunding reasons and fees involved. Thus, buyers will have precise details on the seller’s refund policy without having to call the seller.
Another purpose of a sales invoices is for inventory tracking. Keeping track of all your sold items and orders items can be cumbersome- especially when your orders and sales increase day by day.
An invoice can help both the buyer and seller keep track of the item and follow up or inform the other party if there are any delays. Apart from that, invoices provide accurate data on the items newly ordered to the inventory and items sold in the inventory. Thus, it enables easy inventory management, giving exact details on the stock level in the inventory on each piece.
With this, the management will be able to identify items that need to restock effectively, reducing delays in delivery.
Sales invoices offer you legal benefits, as well. They help you protect your business from fraudulent and petty civil lawsuits. It’s a great benefit, especially for small business owners.
An invoice is a proof that the seller has provided a quality service or a product to the buyer. It is an agreement between the vendor and the customer -Which can be very helpful with proving yourself right against unreasonable customers — the value of the document increases when there is a signature of the customer.
It’s one of the top legally accepted documents that you can use to prove your side during conflicts in pricing. Without an invoice, the seller won’t have any reliable records of the pricing. However, here, the business owners must generate legally valid invoices, including all the necessary details a legally accepted invoice should have.
The invoice can also help you tremendously with your marketing campaigns. If you keep close track of your invoices, you will be able to derive much valuable information that can use to improve your marketing efforts. Information in sales invoices can help you target your customer base and consumer behaviours.
For example, if you could analyze your invoices thoroughly, you will be able to quickly identify useful details such as peak buying hours, peak buyer days, popular products, earning trends, and much more.
This information can be used to tweak existing marketing campaigns or develop new ones to target the right customers at the right time with the right product.