What is an invoice?

What the word means

An invoice records a sale that has already happened. The goods went out, or the work was done, and the invoice says in writing what is now due for it. People often miss the tense. A document about work you have not done yet is not an invoice, however much it looks like one.

What makes a document an invoice

Four things. A document with all four is an invoice, whatever its heading says. This is a test, not a checklist of what to print. For the checklist, see how to write an invoice.

• The seller issues it. The buyer's version is a purchase order, and it goes the other way.
• It states an amount that is due now, not what something might cost.
• It names both parties clearly enough that a stranger reading it later can tell who owed what to whom.
• It has a date and a number in the seller's own sequence, so both sides, and anyone auditing either of them, can find it again.

What issuing one actually does

It creates a receivable in your books and a payable in your client's. The rest of the process runs on those two entries. It starts the clock, because the payment terms only mean something once there is a date to count from. And it becomes the record your tax return is built from. A sale you never invoiced is a sale you will struggle to prove.

Invoicing and billing

People often use the two words for the same thing. The useful difference is scope. An invoice is one document asking for one payment. Invoicing is the whole routine around it: deciding when to send it, numbering it, delivering it, chasing it and recording the payment. Billing is the broader term. In subscription businesses it usually means charging a customer automatically on a schedule, with no document for them to pay. Timing is most of the routine, so when to invoice a client has its own guide.

What an invoice is not

Most of the confusion is between four documents that look alike on paper. A quote or an estimate offers a price for work not yet agreed. A receipt confirms money that has already arrived. A proforma invoice shows what an invoice will say if the order goes ahead, and asks for nothing.

In practice, only one of the four changes what anyone owes. Send the wrong one and a job can end up agreed, delivered and never billed.

Invoice vs statement

A statement, or statement of account, is the fifth lookalike, and the one regular clients ask for. An invoice asks for payment for one sale. A statement summarizes the account over a period: the opening balance, every invoice issued, every payment received, and what is still owed at the end.

A statement creates no new debt. Everything on it was already claimed by an invoice, so it is a reconciliation tool and a reminder, not a demand for money in its own right. That is why your client's accounts payable still pays against invoice numbers. A line that no invoice ever claimed is the first thing they will question.

If a client is behind on several invoices, a statement shows them the whole picture in one place. Send it before you follow up on each one.

Create an invoice