What’s an invoice?

As a new business owner, the world of invoicing can feel complicated and a little overwhelming. This guide should help you make sense of invoicing, so you can spend less time on paperwork and more time running your business.

What’s an invoice?

A sales invoice (often shortened to just ‘invoice’ - we’ll get to other types of invoice later) is a document that a seller issues to a buyer. It includes information on the products provided, and the cost to the customer.

It’s an important document for accounting because it records all the products and services sold, and it can be used as a record of a transaction between buyer and seller. The contract between the buyer and seller should include details of when the seller can issue an invoice and how long the buyer has to pay the invoice.

Lots of customers (especially other businesses) would want an invoice before processing payment. Having an invoice is good practice for transparency and record-keeping purposes - you can refer back to information recorded on an invoice if any disputes arise. In certain situations it may also be a legal requirement, for example where the supplier is VAT registered.

What are the different types of invoice?

It’s fine to just say ‘invoice’ when you speak to customers. But there are some other types of invoice you might come across.

A proforma invoice

A proforma invoice is created before the product or service is actually provided – it’s essentially a quote. You should still send a sales invoice once the product or service has been received or agreed on (if you require payment in advance).

A self-billed invoice

This is where the buyer and seller have an agreement that the invoice will be created by the buyer, rather than the seller. This might happen because the buyer has more control or visibility over the goods or services supplied. It’s common in sectors like construction and logistics.

A commercial invoice

You need to create a commercial invoice if you’re exporting goods outside of the UK. It’s a document which customs offices review to decide which taxes and duties to apply to your shipment. It’s not the same as a sales invoice and isn’t usually used for payment, so you should still provide a sales invoice to your customer.

What information should I include on an invoice?

• The HMRC requirements for UK invoices are:

• The word ‘invoice’

• The date of the invoice

• Your company name, address and contact details

• Your customer’s name and address

• A unique (to your business) invoice number

• A clear description of the products or services you’re charging for

• The date the products or services were provided (supply date)

• The amount of VAT, if applicable (we’ll talk about this in a second)

• The total amount owed (cost + VAT)

• When the customer needs to pay by

• How the customer can pay, such as your bank details or a link to an online payment system

If you’re a sole trader, you need to include your full name, any business names you operate under, and an address where legal documents can be received.

If you operate via a limited company, you need to include the name of your company exactly as it appears on your incorporation certificate, and if you decide to include the name of company directors, you need to include the names of all of them.

VAT invoicing requirements

If you operate a VAT registered business, there are additional HMRC invoicing requirements. On a VAT invoice you need to include everything we listed above as well as:

• The price per item, excluding VAT

• The VAT rate per item

• The total amount owed, excluding VAT

• The total amount of VAT

Not sure if you need to issue a VAT invoice? HMRC says: “Only VAT-registered businesses can issue VAT invoices and if you’re VAT-registered, you must issue a VAT invoice whenever you supply standard rate or reduced rate goods or services to another VAT-registered person. Normally you must issue a VAT invoice within 30 days of the date you make the supply.”

Get more information on VAT rules here

How to write and send an invoice

If you’re a Monzo Business Pro customer, you can create invoices and send payment links in our app or on the web in a few taps. Pro is £9 a month (with no minimum term). Only sole traders or limited company directors in the UK can apply. Ts&Cs apply.

If you’re not a Monzo customer yet, you can use a tool like Word, Excel or Google Sheets to write an invoice (there are templates available within these tools), or you can use an invoicing tool like Xero, Quickbooks or FreeAgent. It’s a good idea to create a folder where you can save all your invoices, and name them with their unique invoice number, so you can find them easily.

When you’re ready to send your invoice, you can send it by email, post, or even attach it to a text message or WhatsApp.

Invoice payment terms

Payment terms are basically the conditions of your invoice, like whether or not you want customers to pay in advance, and how long they have to pay you. Any agreed payment terms should be included in the contract between supplier and customer.

If the contract doesn’t specify a time period the payment is due within, the default is 30 days after the goods, service or invoice was received.

If your customer doesn’t pay on time, you can charge interest on the late payment, though you don’t have to. Read more about chasing unpaid invoices here.

This article is for information purposes only and does not constitute legal, tax or accounting advice. You should get professional advice if you need help to understand your legal rights or to manage your accounting or tax affairs.

Get better visibility and more control over all your money with a Monzo Business bank account. Less time on finances means more time for the important stuff. Find out more about Monzo business bank accounts. Only sole traders or limited company directors in the UK can apply. Terms and conditions apply.