What Is a Sales Invoice and How Do I Create One?

Business Owner Creating A Sales Invoice And Looking At Their Invoices
01 Sep 2022

Sales invoices are an important part of the sales process. They document sales transactions and provide a record of what was sold, when it was sold, and how much money was exchanged. In this guide, we will discuss what sales invoices are and how to create them. We will also cover some best practices for issuing sales invoices. Let's get started!

What is the purpose of a sales invoice and how does it work?

A sales invoice is a document that is used to record sales transactions. It includes information such as the date of the sale, the products or services sold, and the total amount due. 

In most cases, sales invoices are generated by the seller and sent to the buyer after a sale has been made. However, in some cases, buyers may request a sales invoice in advance in order to confirm the details of their purchase. Either way, sales invoices play an important role in documenting and tracking sales transactions.

Why are sales invoices important?

Sales invoices are important because they document sales transactions between the buyer and the seller. For the buyer, it provides a record of what was purchased and when. For the seller, it provides a record of what was sold and how much money was exchanged. Sales invoices also provide a way to track payments for accounting purposes.

Base for tax returns

Sales invoices document an accurate record of your income and expenses, which is important for tax purposes. They are also useful if you’re audited and can be used as proof of revenue for HMRC. 

Source for bookkeeping

Once raised, sales invoices can be tracked by your accountant or bookkeeper as accounts receivable. This helps to keep up with your expected revenue and track overdue payments.  Therefore, it is important to keep accurate and up-to-date records of sales invoices.

Helpful for inventory management

Another benefit of sales invoices is that they can be helpful for inventory management. By keeping track of sales invoices, businesses can get an accurate picture of what inventory items are selling and which ones are not. This information can be used to make decisions about reordering or discontinuing certain products. It can be particularly useful during seasonal events as you can adjust inventory to meet expected demand during busy periods. 

Legal protections

Sales invoices can also provide legal protections for businesses. In the event of a dispute, sales invoices can be used as evidence to support the claim that goods or services were sold. Sales invoices can also be used to prove that payment was made for goods or services – making them incredibly useful for resolving disputes between businesses and their customers.

Collective data for business strategy

Another sales invoice benefit is that it can offer collective data which aids in business strategy. This sales information can help determine what customers want, what they are willing to pay, and how often they will purchase certain items. With this sales invoice data, businesses can make decisions about pricing, marketing, and product development. Sales invoices can also be used to track sales of individual items, which can be helpful for businesses that sell products in multiple sizes or colours.

What should a sales invoice include?

At a minimum, a sales invoice should include the following information: 

Contact information

When creating a sales invoice, be sure to include your business name and contact information. This will make it easier for the customer to reach you if they have any questions about the invoice. You should also include your website address, email address, and phone number.

Date

Sales invoices should include the date of the sale. This is important because it will provide a record of when the sale took place. Including the date on the sales invoice will also help you to keep track of your sales over time.

Customer information

Another important piece of information that should be included on sales invoices is customer information. This includes the name and address of the customer. This information is important because it will allow you to keep track of your sales and who your customers are.

Invoice number

If you are using accounting software to create sales invoices, you will likely have the option to include an invoice number. Invoice numbers are used to keep track of sales invoices and can be helpful when organising your records.

Item description

Be sure to include a description of the goods or services sold. This will help the customer to identify what they purchased. The description should be clear and concise.

Quantity

The quantity of what was sold should also be included on the sales invoice. This is important because it will allow the customer to know how many items they purchased. Including the quantity on the sales invoice will also help you to keep track of your inventory.

Services provided or list of goods

As we discussed above, sales invoices should include a description of the goods or services sold. This will help the customer to identify what they purchased. The description should be clear and concise. You may also want to include a list of the goods or services sold on the sales invoice. This can be helpful if the customer needs to return any items.

Unit price

Identifying the unit price will allow the customer to know how much each item they purchased cost and help the seller keep track of pricing.

Payment terms

Payment terms are the conditions under which the buyer will make payment. This will help to ensure that you are paid in a timely manner.

Discounts offered

If you offer discounts on your products or services, be sure to include this information on the sales invoice.

Shipping charges

This will help the customer understand how much they will need to pay for shipping. Including shipping charges on the sales invoice will also help you to keep track of your expenses.

Tax rates

Sales tax rates vary from country to country and state to state, so be sure to include the correct sales tax rate on your sales invoices.

Total amount due 

Be sure to include the total amount due on the sales invoice, inclusive of all charges. 

Types of sales invoices

There are four primary types of sales invoices that most transactions will fall within. 

Standard invoice

A standard invoice is used in most cases, and covers all of the basic information. This includes the date of the sale, the name and address of the customer, a description of the goods or services sold, the sales price, and the name and contact information for the business. 

Standard invoices can cover service sales invoices and product sales invoices. Service sales invoices document the sale of services, such as repairs or consulting work. Product sales invoices document the sale of physical goods.

Standard invoices typically document a one-time transaction and are presented upon completion of the sale.

Proforma invoice

A pro forma invoice is a sales invoice that is issued before the goods or services are provided. Proforma invoices are typically used to confirm an order or to request payment in advance. Proforma invoices should include all of the same information as a standard sales invoice, as well as the expected date of delivery or performance.

Recurring invoice

A recurring invoice is a sales invoice that is issued on a regular basis, such as monthly or quarterly. Recurring invoices can be used to bill customers for services that are provided on a regular basis, such as landscaping or a subscription service. Recurring invoices should include all of the same information as a standard sales invoice, as well as the frequency of billing.

Commercial invoice

A commercial invoice is a sales invoice that is used for international shipments of goods. Commercial invoices must include certain information, such as the buyer and seller information, a description of the goods being shipped, and the value of the goods, to help the shipment get through customs. Commercial invoices are used by customs officials to determine whether duties and taxes should be levied on imported goods.

How to create a sales invoice

Now that we have covered the basics of sales invoices, let's discuss how to create one. Sales invoices can be created using accounting software, such as QuickBooks or FreshBooks. They can also be created using spreadsheet or PDF software, such as Microsoft Excel or Adobe Acrobat.

If you are using accounting software to create sales invoices, you will likely have the option to include your business logo and branding, which you can also add manually to your self-created spreadsheet or PDF. You will also be able to choose from a variety of sales invoice templates. Once you have created your sales invoice, be sure to save it and print it for your records.

Useful tips for creating sales invoices

Be clear and concise

The information included should be brief and easy to understand. 

Check your grammar and spelling

Sales invoices should be free of errors. Be sure to proofread your sales invoice before sending it to the customer. 

Be prompt

Sales invoices should be sent in a timely manner. Send the sales invoice as soon as the sales transaction is complete.

Stay organised

Sales invoices should be kept on file. Keep a copy of the sales invoice for your records to simplify bookkeeping. 

What to do if you don't receive payment

If you have followed the tips above and have not received payment, there are a few things you can do.

Contact the customer

If you have not received payment, reach out to the customer directly and ask when they plan to make payment.

Send a reminder

If you have not received payment after contacting the customer, you can send a reminder. This can be done via email or post.

Take legal action

If you have not received payment after taking the above steps, you may need to take legal action. This is a last resort and should only be done if all other attempts to receive payment have failed.

What's the difference between a sales invoice and a sales receipt?

The main difference between a sales invoice and a sales receipt is that the sales invoice is administered to document the transaction and request payment, whereas the sales receipt is issued upon receipt of payment.

What’s the difference between a sales invoice and a purchase order?

Purchase orders are created and sent by buyers to the seller to officially request goods or services and track the delivery and payment process. Sales invoices, on the other hand, are created by the seller and sent to the buyer once the service has been completed or the good has been obtained by the customer.

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Written by: Kiera Wiatrak
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