Invoices, they’re all the same, right? Well, no, they’re not. There are several types of invoice and they each serve a different purpose. Here’s some of the most common types of invoice and why you might send or receive one.
1. Standard invoice
Also known as a basic or sales invoice, the standard invoice is the most common type, which is why they’re familiar to so many of us. A standard invoice is sent by a business or person to request payment from a customer or buyer after they buy goods, materials or services. An invoice documents a transaction’s key facts by detailing the:
● supplier/seller name, their address and contact details
● customer/buyer name, their address and contact details
● Goods, materials or services supplied and their quantity
● date of invoice and date of supply
● date when payment is due and payment instructions
● price, VAT (if applicable) and total amount payable.
Need to know! The details within a standard invoice enable your customers, clients or buyers to verify what you’ve said you supplied and how much you’re asking them to pay. An invoice is a record of a sales transaction and they’re essential in the event of a dispute, late pay mentor non payment. Invoices are vital to your business’ financial and tax records, which is why you need a well-organised invoice system.
2. Pro forma invoice
The Latin term pro forma means “as a matter of form” or “for the sake of form”. A pro forma invoice functions as a reliable estimate that a seller sends to a buyer before a sale is confirmed. It summarises the basic terms of a commercial agreement made in good faith, outlining the terms of sale (i.e products or services to be supplied, quantity, price, delivery date, any additional fees, etc).
Unlike standard invoices, pro forma invoices can change slightly as a result of unforeseen events. Pro forma invoices enable both the supplier and buyer/client to plan and budget for actual supply. Buyers/clients can request pro forma invoices if they need financial approval internally or externally (eg from a bank) before agreeing to purchase. Pro forma invoices are not legally binding.
3. Credit invoice
An individual or business issues a credit invoice (alternatively called a credit memo) to a buyer/client when it owes them money. Credit invoices can be is sued to provide a discount off a future purchase or credit as the result of a refund. Sometimes credit invoices are issued to correct an error made in a previous invoice (eg where a customer has been overcharged). The word credit normally appears prominently at the top of a credit invoice. Credit invoices normally include the:
● seller’s name/business name, address and contact details
● buyer's name, address and contact details
● credit note issue date and a unique identification number
● originalinvoice number and date
● reasonwhy the credit has been given, with original products/services itemised
● totalamount being credited
● usage terms, conditions and deadlines
● VAT information if relevant.
Issuing credit invoices and keeping them well organised enables a supplier to keep track of sums they owe in credit to customers, which aids good cash flow management.
4. Final invoice
This is a request for a final payment, which is often issued on completion of a projector agreed supply of services or products over a period of time. In other cases, a supplier can issue a final invoice after they or a buyer/client cancels anon going deal, agreement or subscription, to settle all outstanding payments due. Final invoices help businesses to get all sums owing to them, while telling clients how much they need to pay to settle their bill in full. Final invoices detail all the information of a standard invoice, but normally with clear confirmation that the outstanding amount is a final payment.
5. Interim invoice
These breakdown one large bill into smaller payments paid in timed instalments until the full amount is paid. In Latin, interim means in the meantime. Often suppliers working on longer-term projects ease their cash flow pressures by agreeing interim invoice payments. Similarly, staged payment invoices also offer suppliers and their customers or clients cash-flow easing benefits. As well as describing what’s been supplied and the part cost, interim and staged-payment invoices normally explain where the payment is in the agreed payment schedule, with the grand total amount normally stated.
6. Recurring invoice
Recurring invoices are sent to a customer or client at regular intervals (usually monthly). Common examples include monthly contracts and subscriptions, equipment and vehicle rentals, maintenance packages, utility payments, monthly product supply, etc. Basically, the recurring monthly invoices contain more or less the same information, with only the invoice issue date and payment due dates changing. Invoicing software usually makes it very easy to set up recurring monthly invoices.
7. Past due invoice
Late payment remains a very big problem for many small business owners. Past due invoices provide a formal way for suppliers and sellers to formally notify a customer that they haven’t paid the invoice on time. A past due invoice normally restates the information in the original standard invoice, with clear instruction that the overdue amount must be paid immediately. A past due invoice normally also explains what will happen if the buyer/customer/client continues to fail to pay the invoice. If another business owes you money, bylaw, you can charge them “statutory interest”, which is 8% plus the Bank of England base rate compound daily interest. Sending a past due invoice is normally enough to get most customers to pay their bill.
