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Invoice is a document that enlists products or services corresponding to their prices that are issued to customers by suppliers. A complete invoice contains all details including the name of client, description of company, and warranty if there is any. It is a legal document that can be made part of court proceedings.
Invoices have been around for centuries even when paper was not invented. Merchants used to carve details of transaction on stone tablets, animal skins and parchments. But now, thanks to the evolution of technology, the process has become more sophisticated and convenient.
Modern Invoices are categorized based on their purposes and some of these categories include:
Pro Forma invoices are the preliminary bills that request clients for payments of products or services before they are supplied. The cost written on Pro Forma invoices are usually estimated and actual bills can vary from it. It essentially gives an idea about the potential cost that clients have to pay once goods or services are delivered.
Although Pro Forma invoices contain detailed information about the transaction and both parties, it does not carry much legal weight. Hence, it should not be used for binding agreements or accounting purposes. In addition, it cannot be used to reimburse VAT.
Commercial invoice is one of the most important documents in international trades. It is issued from the seller to international clients and serves as legal proof of the transaction. Clients cannot get custom clearance for the supplies without a commercial invoice. It is used to calculate custom duties and taxes that are applicable to consignment.
Unlike ‘Bill of Lading’, commercial invoice does not indicate ownership of the supplies and does not include the tiles of goods being sold. It only includes value, quantity and the price of supplies in the consignment. Details like terms and conditions between buyer and supplier are not included in this document.
Credit Note is a type of invoice that entertains return of goods due to damage, incorrect order or cancellation of transaction because of some other specific reason. When a customer returns the products to the supplier a credit note must be issued to correct the payment record and make necessary adjustments in the books.
The document helps in recording the reimbursed amount and when due payment on a certain invoice is canceled. Amount mentioned on the credit note can also be used to offset future purchases from the same supplier. You can use the credit note to correct mistakes in invoices, cancel awaiting payments and to provide a refund in case of product damage.
Timesheet invoice is used when the supplier is offering services instead of a product. It is a precise billing method that calculates the compensation corresponding to the time spent for a specific service. This document helps in managing the greatest assets of firms which are employees. It is usually used in law firms, healthcare setups, hospitality and manufacturing industry.
Timesheet invoices improve productivity by tracking the time and expenses on a specific project. It gives a detailed breakdown of total job estimate, labor hours and full cost. Furthermore, firms can implement automated and accurate billing based on the date on the timesheet.
Retainer invoice is a document issued by supplier to potential buyer prior to start of project. Clients can use this method to secure services before they are required. You can describe it as a form of prepayment or deposit as well. The document includes details of work hours and type of services that client requests from suppliers. And, the supplier agrees to it and states the cost that is required for that particular service.
In addition, the document also includes details of payee and payers, contact information of both parties, invoice numbers, relevant dates, amount owed and accepted forms of payment. It can be used in legal proceedings when the suit is filed against either of the parties.
Recurring invoices are used when the customers order the same services or products on a consistent basis. The recurring invoices can be issued daily, monthly, and even yearly. In this document, there is no change in contact details, goods and their prices. Recurring invoices are being widely used where the business model is based on a subscription system.
For an invoice to have a legal standing, it must include several elements. In case some of them are missing, the credibility of the document can depreciate in legal proceedings. These are:
Company Logo is a must for legal documents. It not only makes it easier to identify but also increases the weight in courts.
A document that includes all the relevant details but does not have the “invoice” written in the header is not considered invoice. Otherwise, the court would render it invalidate.
Each invoice has a unique number which helps in maintaining the books. Clients and suppliers have to ensure that number of each invoice is different even if it is recurring. Otherwise, courts cannot differentiate the documents which can result in loss of legal battles.
All the relevant details must be included in the invoice. It includes the time when services or product was supplied, date when service was completed and date when the invoice is generated.
Contact information of the suppliers and the clients must be part of the invoice. It can include addresses, phone numbers and websites. The Names of persons that are handling the transactions should also be part of the invoice.
Terms and Conditions are mutually agreed by the seller and buyer should be the part of the invoice. It is probably the most important element as it can determine the party that violates the contract.
Invoice must be developed based on price per unit instead of pricing the bulk. It would help especially in the cases of refunds that are due to damaged goods. Taxable amounts should also be included.
Total owed amount should be written in bold along with the currency that is owed. Missing the currency sign can be a big setback in legal proceedings.
