When a company sells goods or services, the company must issue an invoice to the buyer. An invoice is an accounting, tax, and legal document that expresses the relationship between business entities, i.e., between the customer and the supplier
For example: As a general taxpayer, a company sold products worth 2000 dollars, and at the same time, the company bought goods for 400 dollars this month and obtained input invoices, with a tax rate of 15%. Then the value-added tax that the company needs to pay is 2000×15% – 400×15% = 240 dollars. Therefore, issuing and keeping invoices in time can reduce the company’s tax burden.
This article covers:
- Who should issue invoices?
- Make sure your invoice is clearly formatted.
- When to send an invoice?
- What is the Invoice payment term?
- What is an invoice date?
- What is an invoice number?
- What is the invoice address?
- What should an invoice contain?
- Which parts of the invoice are not mandatory?
- Invoice Function
- Types of Invoice
- The importance of invoicing
- Keep invoices with you for seven years according to accounting principles.
- Difference between receipt and invoice
- Invoicing through accounting software
Who should issue invoices?
It is a legal requirement that for all sales from a company covered by the VAT rules, either an ordinary invoice, a simplified invoice, or a receipt must be issued. It is also important that the invoice is issued when the sale is completed or shortly after. However, there are some exemptions: if the customer does not expressly request it at the time of the transaction, the seller is exempted from the obligation to issue the invoice in the following cases:
- retail traders
- farmers for goods of their own production
- hotel services
- administration to the public of foods and drinks
- trucking of people
- transit on motorways
- those who provide services on an itinerant basis or in the home of customers.
However, these operators are obliged to issue the customer with other documents used for fiscal control, such as the receipt and the receipt.
Make sure your invoice is clearly formatted.
Your invoice must look clear and orderly. Your logo and company name stand out clearly. And at a glance, your customer sees the amount to be paid, your bank account, and payment terms. If you invest in your invoice’s format and layout initially, you will save a lot of time later. The professional invoice template from Invoice Quickly invoicing templates help you realize your invoice format:
When to send an invoice?
Invoicing before sending the goods/providing services is more advantageous, especially in smaller orders. Although it increases the pressure to fulfill the order on time, it also eliminates the possibility that you will not receive your money. Getting paid in advance is advantageous in terms of better financial flow, especially in small businesses.
Invoicing only after delivery/provision of services requires a more incredible amount of trust. It can be partly risky, and obtaining money for unpaid invoices can prove difficult, or even costly (fees for collection services, etc.).
It is also possible to choose the invoicing division system – i.e., send the client an invoice for the first 50 percent of the total amount and an invoice for the second half after completing the work. Invoicing of large projects can be divided in the same way into three or more clearly defined parts.
Now you know everything you need about digital invoices. It is entirely up to you whether you prefer to use Word, Excel, etc. to create invoices or download the Invoice Quickly invoice templates to help you create online invoices.
What is the Invoice payment term?
If nothing is agreed with a client regarding an invoice’s payment term, the legal payment term of 30 days will be used. In an agreement, the legal payment term may be deviated from within a maximum of 60 days. It is customary for the self-employed that a payment term of 30 days or less is used.
What is an invoice date?
It is the date on which you make your invoice available to your customer. This must never be earlier than the actual date you make the invoice and no later than the 15th day after the month in which you delivered your service or goods.
If you did issue the invoice later, you have to pay the VAT in the period that you should have sent the invoice at the latest. This makes your VAT declaration very complicated. So make sure you send your invoices on time.
What is an invoice number?
One of the invoice requirements is an invoice number. Every invoice number is a mandatory reference. Consecutive numbers are used for your invoices. Each invoice number only occurs once.
Example for invoice numbering: is the year with a number series of 0001. It looks like this:
What is the invoice address?
It is the address of the customer where the invoice must be sent. The billing address is often different from the address to which the order must be sent. This address is then called the delivery address.
What should an invoice contain?
There are specific legal requirements for an invoice that is important to comply with:
Your invoice must have a unique number, which is always next in the number order (e.g. number 20, if the previous invoice has had number 19).
Invoice date (date of issue)
- Seller information: Sender/company name, and contact details
- Buyer information: Name, address, and contact details of the recipient/company
- Information about the sale: The nature, quantity, and price of the product or service
The VAT amount:
As other VAT-registered companies can set special requirements for the VAT amount stated in the invoice, both the VAT amount and the VAT rate should always appear on the invoice.
The Accounting Act also requires that you keep the accounting material for five years, either in plain text or electronically. With Invoice Quickly, you can quickly send stylish and branded invoices that meet the applicable invoice requirements.
Which parts of the invoice are not mandatory?
- All other information on invoices, such as:
- e-mail address
- greetings or words of thanks,
- bank details,
- phone number
- fax number
- Cell phone numbers,
- even the signature of the entrepreneur and
These parts are not mandatory for entrepreneurs from a pure tax point of view.
Get Paid For Your Work
You get money for every invoice you send, helping you keep your business running.
Know your financial situation inside out
Keep track of your outgoing and incoming bills in a single system to know exactly what you earn and spend. Electronic invoicing also greatly simplifies your invoice process and tax filing.
Be transparent about the products and services you charge
Present your services and products clearly, so your customers know exactly what they are paying for. It will also save you time, professional billing services, and avoid misunderstandings.
Promote your business
The electronic invoice is the ideal way to develop the image of your business. Stand out by adding your logo, relevant business information, and a link to your social media.
Types of Invoice
The invoices can be divided into three types. The types of invoices are as follows:
An ordinary invoice is a general invoice that is used in buying and selling transactions in everyday life.
A proforma invoice is a temporary invoice that is given before the merchant delivers the whole goods.
A consular invoice is a particular invoice for conducting foreign trade or import and export.
The importance of invoicing
Understanding everything related to invoicing is essential to the success of a business. If you let things go or have a messy billing process, it could lead to the impression that you are unprofessional. This is particularly damaging for the image and for customer loyalty when managing expensive projects (for example if you organize events or are an entrepreneur).
The easy and quick invoice processing flow is also essential to accounting. If the process seems confusing to your customers, or if you let invoices pile up, it’s likely that their payment is taking too long. That’s bad news when it comes to managing your cash flow, and a big problem when it comes to doing the accounts. Invoicing is also extremely important from a tax point of view. When you own a business, you have to properly record all cash inflows and outflows, so keep a copy of each invoice.
Keep invoices with you for seven years according to accounting principles.
The issued invoice should be stored for seven consecutive tax years, counting from the end of the year in which it was issued. Under the existing legal regulations, every entrepreneur is obliged to keep company documentation, which includes, among others, VAT invoices.
For example, an invoice drawn up on April 13, 2017, must be kept until December 31, 2024.
The undivided journals, the central book with the summary entries, the journals, and the book with the annual accounts and inventory must be kept in their original condition. A copy of all other documents may be saved.
These retention periods are only minimal obligations. There is nothing in the way of keeping the documents longer.
Difference between receipt and invoice
Both invoices and receipts have in common that the payment requester (service provider) issues the payment side (service recipient). So what is the difference between a receipt and an invoice?
Invoices are issued when you ask for a payment, and receipts are issued when you receive money to keep proof that you paid.
It can be said that invoices need to be issued to prevent troubles, but there is no legal problem with receipts even if they are not issued. As a business practice, having a receipt has a strong meaning to enable smooth transactions.
Invoicing through accounting software
Invoice Software like Invoice Quickly makes accounting and bookkeeping easy for everyone. By using our powerful invoicing software, you ensure that you comply with the requirements for an invoice. We offer stylish and customizable invoice templates that you can download and fill out.