What is an invoice?

An invoice is the document a seller sends to ask a buyer for money that is already owed. That is the whole definition, and the rest of this page follows from it: an invoice names an amount, says who owes it to whom, and says by when.

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 is the seller's written statement of what is now due for it. That tense is the part people miss: a document about work you have not done yet is not an invoice, however closely it resembles one.

What makes a document an invoice

Four things, and a document with all four is an invoice whatever it is headed. This is the test rather than a checklist of what to print — for the second, see how to write an invoice.

  • It is issued by the seller. The buyer's equivalent is a purchase order, and it travels in the opposite direction.
  • It states an amount that is due now, rather than an amount something might cost.
  • It identifies both parties well enough that a stranger reading it later knows who owed what to whom.
  • It carries a date and a number that place it in the seller's own sequence, so it can be found again by both sides and by anyone auditing either.

What issuing one actually does

It creates a receivable in your books and a payable in your client's, and those two entries are what the rest of the process runs on. It starts the clock, because the payment terms only mean anything from a date somebody can point at. And it becomes the record your tax return is built from, which is why an invoice you never issued is a sale you will struggle to evidence.

What an invoice is not

Most of the confusion around the word is really confusion 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 states what an invoice will say if the order goes ahead, and asks for nothing.

The practical consequence is that only one of the four moves a balance. Sending the wrong one is how a job ends up delivered, agreed and never billed.

Create an invoice

Common questions

Who issues an invoice, the buyer or the seller?
The seller. A buyer asking a seller to supply something issues a purchase order instead; the invoice comes back the other way once the work is done.
Does an invoice mean I have been paid?
No. An invoice is the request. Payment is a separate event, and the document that confirms it is a receipt.
Does a small business have to issue invoices?
For business customers, effectively yes — their accounts payable cannot pay what it cannot file, and their own tax position depends on holding the document. For consumer sales the rules vary by country, but the practical answer is the same: without an invoice you have no dated record of what was agreed.

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