The only catch is that your customer has asked you to invoice them and you haven’t a clue where to start!
You know that you want it to look professional, be clear so as to avoid confusion (and potential late payment), and include everything it needs to.
Good news! It’s much simpler and more straightforward than you might fear. Read on to see how to create your invoice, what to include on it, and some tips and tricks.
How to make an invoice
You can make your invoice a number of ways:
With pen and paper – there are blank invoice books you can buy from office supply shops to help make this quicker. You may have seen these when a plumber or boiler engineer has visited and filled it out whilst on the visit.
In software you already use every day, which generally has a number of built-in templates to make it faster to create invoices and clear to the recipient. If you use a spreadsheet, you can use it to add everything up, helping to make sure you don’t make a simple addition error that keeps you from getting paid quickly or correctly.
- Microsoft Word & Excel
- Google Docs & Sheets
- Open Office Writer & Calc
- Libre Office Writer & Calc
- Apple Pages & Numbers
- Stripe Invoicing
- Square Invoicing
- Paypal Invoicing
In accounting software, such as Xero, Sage, QuickBooks, etc. If you use this, you can be sure everything you need to include is done, you can send it straight from the software, and for most accounting software you can send it from your phone while you’re out and about, if needed.
What to include on an invoice
Invoices are legal documents, so there are requirements about what must be on them. This varies slightly based on your circumstances, such as sole trader versus limited company; VAT-registered versus not.
The list below is for non-VAT-registered sole traders and limited companies. As always, I must warn you that the VAT rules are complex, so if you are VAT-registered, I strongly encourage you to hire a suitably qualified bookkeeper or accountant to make sure you get it right.
There are also several things that are a good idea to put on your invoices, which I’ve included below.
- A unique invoice number
- Your contact information
- Your customer’s contact information
- The date you provided the goods or service
- The invoice date
- The amount(s) charged for each line item
- VAT amount, if applicable
- Total amount owed
For sole traders:
For limited companies:
In more detail:
The word INVOICE
Invoices, quotes, credit notes, receipts, purchase orders, and several other kinds of business documents often look alike, with the only difference being the name at the top saying which it is. Be sure you write INVOICE to make it clear.
A unique invoice number
You must use a different number for each invoice for clear identification. The easiest thing to do is to number them sequentially. You must keep a record of what invoices you’ve issued, to whom, when, and for how much.
It is best to use sequential numbers, so that you can quickly and easily spot if you’re missing an invoice off your list.
You can use letters in the invoice number, too, if you want.
A reference for the invoice
A reference is a short note to see what the invoice relates to when you are looking at it in a list.
This can be anything that makes sense in your business. Some examples could be:
- If you’re making a dining table and billing it across 2 invoices, you could have these references:
- “Dining Table 1 of 2”
- “Dining Table 2 of 2”
- If you’re making 500 lots of bunting for a major customer, your reference could simply be “500x bunting.”
- If you put on fused glass workshops every month that you bill an organisation or charity for, your reference might be “Fused Glass Workshop Aug 2022.”
Your name, address, and contact information
- Sole traders:
- Include your name and any business name you’re using (Joe Bloggs t/a Whippy Wood, for example).
- Limited companies:
- Include your full company name as it appears on the certificate of incorporation.
- Include your registered office address and your registered company number.
- The names of your directors are not required to be on the invoice, but if you do include them, you must include the names of all directors.
- Include a postal address where any legal documents can be delivered to you.
Your customer’s name and address
Enter the full formal name and postal address of the customer.
For a sole trader, the full formal name is the individual’s full name (not nickname) and if they’re using a business name, that as well. For example, I’m Sara Jayne Slocombe t/a Amethyst Raccoon.
For a limited company, the full formal name is the limited company’s name. For example, it could be Acme Limited.
Top tip: Before you agree to invoice anyone, know who to chase for payment in case you need to. Get all their contact information.
Your customer’s purchase order number, if there is one
If your customer has given you a purchase order number, put it on your invoice. This will help you get paid faster.
If your template has a blank for the purchase order number, use that. If it doesn’t, it usually goes in the top chunk. If you’re using software that doesn’t let you put it there, enter it as a note anywhere on the invoice. Just label it clearly: write “Purchase Order #123456,” not simply “123456.”
What’s a purchase order?
Purchase orders are common in large organisations (including companies, charities, and councils).
The purchase order is a means to tell everyone involved that the purchase from you has been authorised by all necessary parties. That could be the person or people who want to buy your goods or services, the organisation’s accounts department, or you.
The purchase order number helps their accounts department match up your invoice to their internal records so they can see quickly what your invoice relates to, whose budget it’s coming out of, and that it’s already been authorised.
A clear description of what you’re charging for
Clearly describe what you’re providing in such a way that someone not privy to the transaction can understand at a glance what it’s for – whether that’s an HMRC inspector or future you 6 years from now.
While your website may list your rush service as simply “Git’r’done,” make sure to make it more clear on your invoice what that is (on your invoice, you could write “Git’r’done rush service fee”).
Put each good or service on its own line.
The date the goods or service were provided
If you’re ever reading HMRC’s website, you’ll see that they call this the supply date. There are rules surrounding supply dates, invoices, and when things are recorded in accounting records, so it can be important for your recipient to know this date. Those rules are beyond the scope of this blog post, but as a general rule of thumb, it is best to keep your supply date and invoice date within 30 days of each other whenever possible.
If, for example, you worked with a customer to create a bespoke ring, then the date you sent the ring is the date of supply.
If you delivered a class on how to make rings, then the date you delivered the class is the date of supply.
If you supplied different line items on different dates, it’s best to make separate invoices for them. Try to keep it to one date of supply per invoice. If you can’t, note the date of supply on each line item.
The date of the invoice
The date you created the invoice. Ideally, you should create the invoice as soon as possible after supplying the good or service – you will generally get paid more quickly (unless you’re dealing with a large company, which will complete payment runs at set times).
This may be the same as the date of supply, or it may not. Mark this as the Invoice Date on your invoice.
The amount(s) being charged
The amount you’re charging for each line item.
VAT amount, rate, and number if applicable
If you’re VAT-registered, I strongly encourage you to hire a suitably qualified bookkeeper or accountant. VAT rules are complex, and it’s easy to miss something – after all, you didn’t get into business to learn VAT rules. Hire someone who did.
For completion’s sake, I will note that if you’re VAT-registered, you are required to include your VAT registration number, the VAT amount and the rate you’re charging on the invoice. If different line items attract different VAT rates, be sure to note which is which.
Be sure to check the regulations about VAT invoices for the rest of what’s required.
Make very clear the total amount owed! You don’t want the customer to pay you a subtotal because they got distracted and didn’t catch that there was another, bigger number they should have been looking at. Highlight it, make it bold, make it larger, offset it — do whatever looks good to you and makes it obvious that this is the amount to pay. Also label it something like Total, Amount to Pay, Total Payable, etc.
Top tip: Double-check that the addition is right before you send the invoice. You don’t want to either have to spend more admin time later going back and forth with your client to correct an error before they’ll pay. Worse, you don’t want to discover later that your total was less than it should have been – but they’ve already paid. Both of these things happen far more often than you might expect.
Usually you’ve agreed these in a contract you signed with that customer before doing any work for them. It’s always good to include a reminder on your invoices so they know. You can say “Payable within 30 days,” for example, and/or you can include a due date.
It’s always best to receive payment before you complete any work. It eliminates the stress of your client possibly not paying and the admin overhead of chasing them for payment.
Top tip If you’re working on a large project, it’s best to ask for payment in stages to help you manage your cash flow and help ensure you get paid for your work. Consider asking for half up front and half upon completion, or four payments of 25%, or a 75%/25% split.
Late payments are a major problem in the UK small business community, with 17% of all payments to SMEs late. You can charge interest on late payments from another business if you want to. You can charge 8% plus the Bank of England base rate. You must notify your customers that you’ll do this, however. You should put it in both your terms in that contract you signed before trading, and also on the invoice, to avoid any doubt.
As an example, if you were owed £1,000 by another business, with the Bank of England base rate currently at 1.75%, you would calculate interest this way:
- The interest rate would be 8.5% + 1.75% 10.25%. Remember that 10.25% 0.1025.
- One year’s interest would be £1,000 x 0.1025 £102.50
- Divide £102.50 by 365 to get the daily interest: 28p per day (£102.50 365 28p)
- Multiply by how many days late the customer is paying. If they take 90 days to pay from when you issued the invoice, and you gave them 30 days to pay, then they were 60 days late. 60 28p/day £16.80.
How the customer can pay your invoice
If you want them to pay by bank transfer, include all the information they need to do that: Bank name, Account name, Sort code, and Account number.
- Bank name: Starling
- Account name: Joe Bloggs
- Sort code: 00-11-22
- Account number: 12345678
The account name is the name on your bank statement. This should be your name (if you’re a sole trader) or your company name (if you have a limited company). It is not “Premier Current” or whatever your bank refers to the account type as. When someone pays you, they need to type in the name on the account, and their bank will try to match that name to help check whether you have the right account (or whether you’ve accidentally typed the wrong account number, for example). So, on your invoice, write your name or your business name exactly as it appears on your bank statement.
If the customer is international, make sure to include IBAN/BIC/SWIFT numbers for them.
If you have any other means of payment that you can accept, be sure to include those here. If you use accounting software, you can connect payment processors such as Stripe, Square, and Paypal to enable payments by card. Otherwise, you may include that “Cheques can be made out to Joe Bloggs” for example.
- Save your invoice as a pdf, to make it slightly more difficult to tamper with, and then send it to your customer. (Or print and post it, if necessary.)
- Save a copy of the invoice in your own files.
- Add it to your list of sales invoices.
Once you’ve invoiced, hopefully you get paid!
You’ll need to check through your outstanding invoices every time you sit down to do your bookkeeping (preferably weekly, though this depends on your business) to see if you need to chase any clients for payment. It’s up to you to ensure you get paid.
One of the advantages of using software is that it can automate sending invoice reminders to clients, which is a great help if you feel awkward asking for money. You can do this with most accounting software as well as with most payment providers (such as Stripe, Square, and Paypal).
Now that you can invoice professionally with confidence, the sky is the limit! Who can you recruit as a customer now?
All requirements listed above are correct at the time of writing.
In case there have been any changes since then, you can check the list of invoice requirements on gov.uk.
Could you use a hand setting up your invoicing system to make sure you’ve covered everything, or to automate as much as possible? I’d be happy to chat with you about this.