Invoices are a critical component of every business. They serve as a bill of services, closure for projects, a legal paper trail, and an opportunity to strengthen the rapport between you and your customer.
Invoices that obfuscate information, incorrectly state terms or arrive incomplete can be a massive headache for all parties. These mistakes will only delay the payment process, so it is critical you produce invoices that clearly deliver information your client (or their accounts payable department) will need. Strategic timing and attractive presentation are also important, as they can help “soften the blow” by making your invoice seem less like a stale demand for money and more like a friendly letter.
Invoice Contents#section2
Invoices have many small bits of important information. They should always contain the following:
- The word “invoice.” Obvious enough, but don’t let the client mistake it for anything other than a bill that needs to be paid. Make it big and bold and put it at the top of the page.
- Your Employer Identification Number (EIN) or Tax ID Number. This will be important come tax time, when the client starts putting together W-2s.
- Similar to the EIN, some clients may assign outside contractors a unique Vendor ID. This practice is usually found in larger companies. If you have been given one, be sure it appears conspicuously.
- Names and addresses of both client and contractor. Make a clear distinction between the “to” party and the “from” party.
- Date everything. Date the invoice (the day it goes out, not the day you write it) and list the dates of when items on the invoice were completed. In the terms, list the due date and penalty dates. If something ever goes to small claims court, the judge will look favorably on your scrupulous attention to detail.
- A clear, itemized list of services rendered. Descriptions should be short and to the point, and all delivery dates indicated. Next to each item, list the hourly rate, hours worked and subtotal amount.
- The total amount owed. On the bottom, labeled explicitly, bolded if needed.
- The terms of the invoice. At the very least, this should include when the invoice is due; for instance, if you expect payment within thirty days (fairly standard), simply put “30 Days.” (You could also put “15 Days” or even “Immediate” if you don’t particularly like the client.)
Setting Your Terms#section3
The terms section of an invoice can be as simple or complex as you would like, dependent on your billing standards. You might offer a 1-2% discount for invoices paid within 15 days; similarly, you might penalize late payments. The amount is up to you. If you do set terms beyond 30 days, spell out exactly what the penalty will be for each level of delinquency. For instance, say you bill a client for $1,000. The bottom of your invoice may look like this:
| Payment Time: | 15 Days | 30 Days | 60 Days |
| Adjustment: | – 5% | 0 | + 5% |
| Adjusted Total: | $950 | $1000 | $1050 |
Delivery#section4
You can send an invoice through e-mail or the post office, and each method has advantages and disadvantages.
Mailed invoices are more professional and are generally recommended over e-mail. The client appreciates a physical bill that can be filed, photocopied and passed along, and has less chance of getting lost. (If you send them a PDF, chances are they are going to print it out and do all these things anyway.) Taking the time to prepare, print and mail the invoice will only reinforce your professional image — especially valuable for new clients.
E-mailed invoices (PDF format is the best) often work better for regular monthly billings, like ongoing creative (similar to an advertising agency) or maintenance fees (like regular web site updates).
Personalize the invoice with a small note. A quick “thank you” is often appropriate and appreciated, and makes your business seem less like a faceless corporate billing machine.
Timing#section5
There is a certain strategy in the timing of an invoice delivery. For down payments, the first invoice should be in the client’s hands immediately after the contract is signed. For milestone points and the final deliverable, invoices should be sent within 48 hours, while your fantastic work is still fresh in their mind. Never send an invoice prematurely, unless it is explicitly agreed upon between you and your client. No one wants to pay for unfinished work.
Instead of attaching invoices to the actual deliverables, exercise courtesy by creating a wholly separate communiqué. Your invoice will be more impressionable (and therefore remembered and acted upon) sent alone rather than buried in other documents and files.
Avoid having your invoice arrive on a Friday. No one wants to see that before heading to the beach, and it will be long forgotten by Monday. If you’re e-mailing the invoice, do it in the morning when the person is more likely to be working, and when they will be more inspired to act on it.
Aesthetics#section6
Most freelancers and small companies use accounting software, which may or may not give you control over the design. If yours does, or if you draft your own invoices from scratch, try to escape the stale corporate output of QuickBooks and family by adjusting colors and fonts to reflect your personal brand. At the very least, get your logo on there.
Above all, ensure the information is clear and readable. Your client may appreciate your refined design sensibilities, but the accounts payable department just wants to find the big number at the bottom.
Conclusion#section7
Armed with these tips, you’re set to bill the world in style. Be sure to keep hard copy and PDF backups of every invoice that goes out, even for the two-page web site for your sister-in-law’s hair salon. Invoices are one of the most critical links in the paper-trail chain, so take the time to ensure the information is triple-check perfect. (And if that information arrives in style, even better.)
Just in the nick of time. That’s all I gotta say.
Thanks 8 )
Whenever I’ve sent out invoices, I’ve always added an Invoice ID (or Reference ID). If I have to phone a company about a specific invoice, or they need to phone me, it saves time if you can use an id number to denote the specific invoice. This especially helps when dealing with companies that owe for several invoices, or larger companies.
I’ve run a software consulting firm for 12 years. I learned very early on — don’t bother offering discounts for fast payment. Your big customers will pay late and still demand the discount.
Maybe that’s no longer true, but I heard from a variety of sources that it was common practice to exploit those discounts.
Also, you’ll find that many companies don’t pay invoices until you ask them. I had one client who I referred to as paying “bitch plus three”. If I wanted to get paid, I just asked the accountant when to expect a check. I’d get it 3 days later. I could ask at 27 days into the invoice or at 3 months. The invoice wouldn’t get paid until I asked about it, then it would get moved to the top of the pile and be paid the next time they cut checks.
I’ve had an interesting (and positive) experience in this area upon my recent return to the Mac OS. I found iWork 2, which is a great little time tracker. It integrates with iCal, which in turn integrates with Basecamp via a project XML feed. So, I’ve got top-to-bottom task management and time-tracking – a system that simply didn’t exist a few years ago, certainly not on Windows for the price. It certainly has a ways to go, but it’s a great start.
A nice surprise were the invoicing templates for iWork – at first glance, they were quite ugly. Some cleaner fonts and a company logo, however, produced some really nice-looking invoices.
I had forgotten about adding a few things mentioned, however – glad I caught this article when I did. Thanks apartness!
Great article! I’m glad to know that my invoices have been pretty much on the mark, but now I know how I can make them even better. Thanks again!
First, let me chime in with the others who said that this is timely and relevant. Good work.
However, I’m a little baffled at some of the things you list, such as the “Employer Identification Number” and “W-2”. Can you explain these more clearly so that we can determine what our national equivalents are?
PS those looking for an alternative to iWork may well want to check out AppleSource’s TimeNet (http://www.applesource.biz/software/timenet/)
Thanks for a great article. Nuts and bolts stuff like this merits almost as much attention as high-design technique. (It, too, is all about the usability.)
As long as we’re sharing, here are a couple of things I do that make freelancing a little easier:
To achieve that wholesome branding goodness, I design the invoice in a page-layout program (I use InDesign), trying to be careful not to “overdesign.” Then for the guts I place an Excel spreadsheet, so that Excel does all the number-crunching automatically as I enter blocks of time on the job.
Also, I’ve adopted a convention of making the invoice number correlate semantically to the date the work was begun (e.g., TM-040711-XYZ, where TM are my initials and XYZ is an acronym for the client). Then as you suggest, date the invoice the day it is sent.
This method provides two advantages:
1. It indicates the overall duration of the billing cycle (the difference between the invoice number and the invoice date), and
2. The invoices order themselves both chronologically and by name in your folder.
Obviously not as sophisticated as say, iWork or Basecamp, but good enough for us small fry.
Meek, I hear you on the value of the nicely formatted, InDesign-created invoices. That was my process exactly – until I started using iWork. Any good invoicing tool will work, but boy I sure got tired of sifting through all my PDF invoices manually, when now I can search my database. The appearance of the tweaked template is pretty nice IMHO.
iWork also does automatically increment the invoice and job numbers, I think you can combine it with a text string in the template.
I hear that Studiometry (www.oranged.net) is also good; I checked several out before selecting iWork.
I also wanted to clarify: Basecamp doesn’t do invoicing (yet – tell it to Jason; support@basecamphq.com), it’s just for project managment. But I can pull down a task list: BC >> iCal >> iWork.
Forgive me if I’m O/T with software tools; but Basecamp and iWork have radically transformed the way I work.
– Employer Identification Number (EIN)
– Social Security Number
– putting together W-2s
what the?
Never ever expose your Social Security Number on an invoice (or anywhere else for that matter). Use an EIN instead, you can get one from the IRS for free and it takes about 15 minutes.
nathan — You are absolutely correct about the SSN on invoices, and I am sending an e-mail to the editor asking that small part be fixed. It should be noted that if you do not have an EIN, a SSN will still be required for a W-2.
I also understand that this article is based on the “American system” of business. I am writing from my experience, and would welcome further articles with a more international theme. But barring a few acronyms, I feel many points remain valid in any country or culture.
Thanks for the great feedback so far.
Gr8 Article, Keep up the Good work 🙂
Here in the United States of Australia we have other requirements, mandated by the Tax Office. If you’re in Oz, contact them and get their handy booklet.
I take it that the EIN is the equivalent of our ABN, just to muddy the water some.
I’ve found keeping invoices in Filemaker Pro pretty darn good, and with Filemaker the layouts of the page can be very prettily designed. I’ve got mine to auto-generate lists of outstanding invoices, lists of invoices due to recurr, and so on. Generating the invoice and sending it via email is now a one-click trick for me.
Early on in my career as an entrepeneur, I may have lost an important client due to invoices. After not having received a payment for one and a half month (what’s normal differs per country), I sent them my standard reminder.
It turned out they had actually tried to pay me, on time no less, but that I had printed the wrong bank account number (preferred methods of payment also differ per country), and that the money had bounced. I made a bad impression with that bounce, but probably more so with my uninformed reminder.
Everybody can make mistakes, so now I phone late customers. I tell them that I appreciated the cooperation, and ask them if they received the bill OK. This way, any potential problems can be resolved by polite dialog.
(It has happened once that a client started shouting at me when I did this, but it turned out later he never had any intention of paying me anyway.)
(Also, but this is hearsay for me, there seem to be companies whose policy it is to always pay late, and who will tell you so _after_ you delivered your service/product. I can imagine that this might make the phone conversation a little awkward.)
Translated into Canadian:
– EIN = GST registration number
– SSN = Social Insurance Number (SIN)
– W-2 = A form which reports an employee’s annual wages and the amount of taxes withheld from his or her paycheck. I think it’s a T-2 form, but I could be pulling that number from my ass.
After looking at iWork, I was wondering if there was anything similar for the pc. I have used microsoft money, but found it is very bad at creating invoices, especially if you are self-employed.
All of my clients pay me on time or at least let me know payment is going to be delayed. If you have become ‘friends’ (I use the word very loosely) with your clients they will feel obligated to pay you on time.
Try joking with them or getting just a little personal. I find sending links to pictures of a recent addition to my home helps out greatly. Also giving them heads up when you are leaving town for a couple of days is appreciated.
This only works if you are a small business (or single person shop) working with another small business.
Like everyone else… great article. I was also wondering about PC software…
This might be of interested to some. Written a while ago now and getting a bit old it’s a quick example of using XML to create PDF invoices with Formatting Objects. Saved me a heap of time.
http://www.zype.co.nz/resources/tutorials/invoice/
Thanks for an excellent article. What we may want to add is that a lot of these points apply to all business communication (contracts, proposals, reminders, etc.). We find that the easier you make it for the recipient to review, process, and store a communication, the more efficient it is for everyone. The question we like to ask before we send out a communication is “If I received this communication will I be able to review, process, and store it without making a phone call?”
I’ve been using this software since the 2003 version, and just upgraded from 2004 to 2005. The invoice customizer kind of sucked balls through 2004, but I’ll post back with 2005’s, since a lot of the rest of the program is very much improved.
I prefer to use a program that will track invoice numbers, customer IDs, etc. for me, since other options don’t really scale well as your business begins to grow.
Nope, still sucks.
The company I work for uses OCR to convert their suppliers invoices into digital form. Not surprisingly alot of companies dont know the value of having clear and concise invoices. I know for a fact that companies that somewhat follow the guidelines you have stated in your article get less hassle and paid quickly.
On a semi-unrelated point, in the US, is there a benefit to being either a freelancer or set up as one’s own business (s-corp etc..)? I have been freelancing for several years, and really don’t know what the heck i’m doing in terms of the biz end of things.
Are there any good tutorials or reference sites out there that I might find helpful?
Studiometry is a great app for invoicing and time management with loads of features and very responsive author.
What’s really cool is that you can export your invoices as an XML file, and then import the XML into an InDesign template. All the number crunching and admin is automated by Studiometry and the end result is a beautifully designed InDesign document – check it out!
I think it’s worth highlighting that this article is specifically aimed at Americans.
Whilst an interesting read, I fail to see how outlining American business practises is going to help the rest of us. There’s no mention of referencing any Purchase Orders you have (I have no idea if you have them in the US), I for one wouldn’t start any work without one, and it’s far more important than laying out your invoice correctly, as it’s your only guarantee of payment.
Anyway, a couple of general points
Under contents:
No mention of any local sales tax. Value Added Tax (VAT) in the UK must be broken down to the client, and the rate of tax must be stated if you are a VAT registered business, for example. I’d imagine this is true in other countries.
Under timing:
“No one wants to pay for unfinished work.”
Yes, they do.
Especially if they want to get the work paid for in a particular month or tax year because of budgeting.
I suggest UK folk take a look at this article, which includes a nice example of a UK style invoice.
http://www.fastlinksolutions.co.uk/invoicin.htm
I loved your articles on Invoices. I used to run into so many pitfalls when trying to create invoices for my clients. Most of the time, the biggest issue was that I hated how to invoice looked.
I don’t mean to sound like a cheap promoter, but I built some PHP / MySQL software to handle all of my invoicing, it’s called TypicalInvoice.
I was bought by another company who is now selling it, but the software is still very helpful in my opinion.
You can check it out at http://www.typicalgeek.com/demo/tiv2/ or you can e-mail me and I’ll send you a free trial copy. 🙂
Keep up the good articles!
Jeremy
add your legal fine print to the bottom of every invoice (e.g. terms for late payment, recovery of legal expenses in case of non payment, etc…) It can save your ass in court.
I never thought about how some people might think it’s more professional to mail an invoice. I’ve just been sending invoices through email using QuickBooks. I might start sending invoices through the mail for Web Design / Programming and then still use email for reocurring web hosting invoices.
Not many business owners think much about the invoice process and it is about high time that changes. In the SMB space it is all about cash flow so your tips are awesome! Now if I could trackback to this..
Anne
I use NetOffice for project management and GNUcash for accounting billing and invoicing. Still trying to get my invoices to look nicer in GNUcash.
Both are great apps and you can’t beat the collaboration aspects of an online project management system where clients can log in and see the status of their projects, upload and download files, and approve designs.
For Mac users GNUcash is available thru fink http://fink.sourceforge.net
http://www.gnucash.org/
http://netoffice.sourceforge.net
congratulations for the article.
Brand new to iWork. I’ve been using MYOB software for a couple years and have been fairly happy with it. However, it has some limitations to custom invoice building and is also far more complex than what I need to operate for my sole-proprietor design firm.
With iWork, I have a singular issue I can’t get around. I am using the server addition with several clients loaded on freelancer machines. However, there doesn’t seem to be a way of building a custom invoice on the server side, and if I attempt to do so on the client side I get an error message that says the iWork client can’t find the “client ” in the address book because it’s on the server. How then can I build custom invoice templates if I can’t access either address book?
thanks for any help.
We’ve been e-mailing PDF invoices to our customers who order our software by purchase order (typically universities and K12, but also corporate customers). I used to mail them paper copies.
In my experience, e-mailing has been just as effective as paper. We’ve gotten paid from all our PDF invoices and in a timely manner. Maybe we just have great customers.
I agree with the comment about stale corporate invoices generated by Quickbooks (that’s what we use). I wish our invoices were visually snazzier. I don’t know that it would make any difference with respect to reputation or professionalism, though. In our case, the customer who orders our product is generally not the person who has to look at the invoice and pay it.
Jim
Hi!
I just discovered a small software that really helps improve the design of my invoices using Quickbooks. In fact it will help you create PDF files from every program that includes print command.
The software is called DocuCom PDF Driver. More info here.
From Quickbooks (or any accounting package) you create an invoice template without any “fancy” things like border, etc. You just print the bare data (adresses, memo, terms, services, totals, etc) with the nicest font that you can from your accounting package. When you are done, you print with the PDF driver which allows you to set another PDF as a background or as an overlay. You could design this in Photoshop for example (then print it to PDF!).
Great for producing invoices! Once the PDF is generated you can print/mail it or email it.
That works for me!
Ciao,
Patrick Lafleur
This is something I have been thinking about doing for sometime (really incoperating my identity into my invoices) as well as just a great article on inside practices.
Regards,
Tyler