Last updated: 10th March, 2021
The ultimate guide to invoicing
From how to write an invoice to the best payment terms, there are plenty of stages in the invoicing process. This guide will outline what should be included in an invoice, the UK’s legal requirements, the best payment terms, and how to chase late payments.
What is invoicing?
The process of invoicing is used to pay businesses or individuals for services. Whether you’re a freelancer or own a small business, if a client or customer has used your service they will need to pay you for it.
There are different types of invoices, which are used for different purposes:
- A generic invoice is used to bill your client, stating how much is owed for which services and a payment deadline
- A proforma invoice is used as a preliminary bill of sales to agree the terms of the sale
- A VAT invoice is used when a service is subject to sales tax.
Prior to Brexit, the UK’s VAT invoicing extended to the EU. Now that the UK has left the EU, the government has introduced ‘postponed accounting’ for VAT, applicable to goods imported into the UK from EU and non-EU countries. This means that businesses in the UK that are VAT registered can account for import VAT on their VAT return, as opposed to paying import VAT on or soon after the goods arrive have arrived into the UK. However, customs and duties will still need to be paid.
How to write an invoice
Here’s our step-by-step guide to what you should include when writing an invoice.
1. Use your branding
Whether you use a template or start from scratch, your brand logo should be at the top of each invoice. Not only does this make your invoice look professional, it helps your client immediately identify who it’s from – which might help you get paid quicker.
You can also make your invoice align with your brand by using matching fonts or colour schemes, but don’t favour style over substance – make sure it looks professional and is easy to read.
2. Clearly state what the document is
Along with your logo, at the top of each invoice should be the word ‘INVOICE’ in capital letters. This makes the document easily identifiable and will ensure it’s sent to the appropriate person at the other end.
3. Add your business details
Your invoice should always include:
- your name and your company’s trading name, where relevant
- your registered business address
- your contact details (phone number and email).
4. Add your customer’s details
Under the headline ‘Bill to:’, include:
- the name your customer or client (if you are billing a business, try to include a contact name and a company name)
- your client’s billing address
- a reference, if you were provided with one (for example, a purchase order number).
5. Include a unique identification number
Your identification number should be a sequence of numbers that increases each time you issue an invoice – this helps avoid any duplications. You can also include a letter in your invoice number, which can be repeated per client.
You should also add the date that you create and send the invoice.
6. List the sale details: description, quantity, unit price, total
You should include a table to write out the sale information, ideally in four columns with the headers: ‘Description’, ‘Quantity’, ‘Unit price’ and ‘Total’.
- Description – describe the service or goods you provided and the date it was delivered
- Quantity – how many of the product you provided or, if you’re charging for a service, you could add the number of hours or days depending how you charge
- Unit price – the price of each service or product individually (i.e. per item)
- Total – the combined cost (the quantity x unit price).
The description you write should be clear and detailed, without being too long, so that your client can easily identify the service they used or goods they bought.
Below this table you can have additional information relating to the price owed, such as:
- Subtotal – the combined totals for each row in your table
- Discount – where applicable, usually as a percentage
- Shipping and handling – also known as postage and packaging
- Tax rate – for example VAT, as a percentage
- Total tax – the tax as an amount
- Total due balance – the amount owed to you after tax and discounts have been applied.
7. The payment terms
At the bottom of the invoice, you should leave room for additional notes or comments. In this section you should include the payment terms. If you agreed to be paid in a certain number of days, remind your client of that on the document. You should also state how you expect to be paid – including the bank details of the account you wish the money to be paid into.
Legal invoicing: what are the requirements?
In the UK, there are some involved in the invoicing process.
What must your invoice include?
While many people choose to adapt their invoice template to suit their needs, there are certain aspects of an invoice required by law in the UK. These are:
- The unique identification number
- Your company name, address and contact information (if you’re a limited company, your name must appear as it does on the certificate of incorporation)
- The company name and address of the customer you’re invoicing
- A clear description of what you’re charging for
- The date the goods or service were provided (supply date)
- The date of the invoice
- The amount(s) being charged
- VAT amount if applicable
- The total amount owed.
If you’re a sole trader, you will also need to include:
- Your name and any business name being used
- An address where any legal documents can be delivered to you if you are using a business name.
Payment obligations as the recipient
There are certain you must agree to if you are paying an invoice. These are set to protect the company – ensuring they are paid for the goods or services they offer – or the customer – if the goods are not delivered under the agreement.
- Unless agreed otherwise, payment must be made within 30 days of the client receiving the goods or service.
- If the payment is not made on time, the company or creditor can make a statutory demand for their payment or charge interest.
- If the goods do not arrive or are not as described, or the customer’s card was used to pay fraudulently, they can action chargebacks – ask their credit or debit card issuer to reverse a transaction.
- If the charging company plans to charge their customer every time they use the service, they will have to be authorised by the Financial Conduct Authority (FCA).
How to pay invoices overseas
There are several ways to pay invoices abroad. Whether you use your bank, a money transfer app or your local post office, remember to honour the payment terms and pay in the format you agreed upon.
With PagoFX, you can send money overseas with ease. With no hidden costs, you can rest assured your money will be safe and you will know exactly how much you’ve sent. PagoFX can also generate a receipt for your payment if you need one.
What are the best payment terms?
When creating an invoice for a client, there are several payment terms to consider. How do you want to be paid? When do you expect to be paid? What will happen if they pay you late?
When will you be paid?
There are several types of payment terms that set out when you will be paid. Here is a list of them and what they mean:
|Net monthly amount||You will receive payment on the final day of the month|
|PIA||You will receive payment in advance|
|Net 7||You will receive payment seven days after invoice date|
|Net 10||You will receive payment 10 days after invoice date|
|Net 30||You will receive payment 30 days after invoice date|
|Net 60||You will receive payment 60 days after invoice date|
|Net 90||You will receive payment 90 days after invoice date|
|EOM||You will receive payment at the end of the month|
|21 MFI||You will receive payment on the 21st of the month|
|1% 10 Net 30||Your client will get a 1% discount if payment is made within 10 days, otherwise full payment is due 30 days after invoice date|
|COD||You will receive a cash payment on delivery|
|Cash account||The account is conducted on a cash basis, no credit|
|Letter of credit||You will receive a documentary credit confirmed by a bank|
|Bill of exchange||You will receive a promise to pay on a later date, most often supported by a bank|
|CND||You will receive cash on the next delivery|
|CBS||You will receive cash before the shipment|
|CIA||You will receive cash in advance|
|CWO||You will receive cash with the order|
|1MD||Monthly credit payment of a full month’s supply – this allows 30 days (or a month) from the date of invoice|
|2MD||Monthly credit payment of a full month’s supply, plus an extra calendar month|
|Contra||Your payment is offset against the value of supplies – when a customer is also a supplier|
|Stage payment||Your payment is agreed in stages or milestones|
How will you be paid?
It is the responsibility of the charging business to outline in their invoice how they wish to be paid. For example, if you want the fee in cash, bank transfer or into an e-wallet account, this should be made clear and the relevant details included in the document you send to your client.
When to send an invoice
You should send your invoice once your client has confirmed they are happy with the goods or services you have provided. Whether you give them a ring, see them in person or send an email, it’s important to know you have fulfilled your end of the agreement and are not chasing for payment before you know you have a satisfied customer.
Once you have this confirmation, send an email thanking your client for the work and, if appropriate, stating that you’d be happy to work with them. Ensure your email clearly states the project that you worked on, that your invoice is attached and when the payment is due – don’t forget to attach it!
How to handle unpaid invoices
If you’ve not received your payment as per the terms of your invoice, it’s time to chase your client. Hopefully, the reason you’ve not been paid could be due to a slight error or someone being forgetful. Stay professional to protect your reputation and relationship with your client.
To start, send a polite email reminding the client of the deadline, framing it as if you’re checking in with them. Reattach your invoice and say that you’re looking forward to hearing from them soon. You can always call your client and ask them directly, but it’s a good idea to follow up in writing to confirm what they have told you.
If after a few days more you have still not received your payment, you might consider charging your client for a late payment. Notify them that if you do not get payment by a certain date, you will send an updated invoice with a late payment fee. Hopefully this will be the push they need to send your money.
If you do end up charging a late payment fee, you can charge statutory interest, which is 8% plus the Bank of England base rate for business to business transactions. However, if there are any pre-agreed interest rates, you must honour the contract.
You can also claim debt recovery costs from your client. This means charging them a sum of money for the cost of recovering the late payment, which can be paid on top of any interest. You can charge £40 for debt up to £999.99, £70 for debt between £1,000 and £9,999.99 and £100 for £10,000 or more. This should, of course, be a last resort – the smoother the transaction, the more likely it is that you will get repeat business.
This article is provided as general information purposes only and is not intended to cover all aspects of the topic. We recommend that you take professional and specialised advice before taking, or refraining from, any action based on the content of this publication, as this article is not intended to constitute expert advice. We do not guarantee, explicitly or implicitly, that the content of this article is accurate, complete or up-to-date. The information in this article does not constitute legal, tax or other professional advice from PagoFX or its affiliates.