What you’ll learn: 

  • Why proper invoicing is critical for small businesses 
  • Different types of invoices and details to include on each 
  • How to create a bulletproof invoicing process

All businesses, from sole proprietors to growing enterprise teams, rely on invoices to bring money in the door. Without a proper invoicing process, your attempts at monthly financial planning will quickly dissolve into a disorganized mess—you may find yourself waiting around for revenue that you really need, unable to make critical payments to employees, contractors, or other vendors. Strong invoicing skills are fundamental to understanding your business and being able to grow effectively. Let’s start with the basics.  

What’s an invoice?

An invoice is a formal document that outlines the amount of money owed for any work performed or item purchased. They also typically include an itemized list of goods or services provided to the client or customer. Invoices are an important record of the details of a sale and formally bind two parties to a transaction, which has implications when it comes to tax season and running financial reports for your company. 

Why is invoicing important?

Sending an invoice generally prompts payment within a certain time frame (depending on the payment terms attached to the invoice) which helps businesses predict when cash will be hitting their account and plan more effectively.  

Even if you have a freelancing gig, manage a handful of employees, or work on a part-time cadence, you should still have a baseline understanding of how invoicing works and what details you need to include when you send one. 

How do I create an invoice?

Invoices should be easy, as long as you have all the information you need and a way to send the invoice to the recipient. Generally speaking, invoices should contain three primary sections. Let’s jump in: 

Section 1:

  • 📥 Who the invoice is coming from: This section should include your company’s name, address, and point of contact.

  • 📤 Who the invoice is going to: This section should include your client’s company name, address, and point of contact.

  • #️⃣ Invoice number: There isn’t a right or wrong way to create an invoice number, as long as it possesses information that allows you to refer back to that invoice in your records. A recommended practice is to include the date or month in the invoice number (i.e. Hopscotch_JUL2022).

  • 📅 Date invoice is sent: The date on which your business is sharing the invoice with the client or customer. 

  • Date invoice is due: The date by which they must send payment to your company.

Section 2:

  • 📝 Line item + description: This is the most important part of an invoice. List out the services or goods you provided, the hourly rate or project fee for each part of the work, and the subtotal for that line. 

  • 💰 Total amount owed: Tally up the costs on the invoice, apply any taxes or additional fees, and finalize the amount owed to your company from your customer. Be sure to do the math carefully and ensure that each individual line in your invoice accurately adds up to the total.

Section 3:

  • 📓Invoice Note: This is an open-ended section where you can include any additional information relevant to the invoice. For example, you might want to share instructions on when your clients should send payment and the types of payment methods that your business accepts. A friendly “thanks for your business!” note wouldn’t be out of place here either. 

  • ☎️ Contact Information: In the footer of your invoice, it’s recommended to leave a contact name, email, or phone number.

What is an invoice used for?

Invoices are the first step to collecting payment for the work your business has done, whether it be a one-off project or a recurring contract. Beyond the immediate benefit of getting paid, there are larger organizational advantages to a clear, consistent invoicing process. 

  1. Accurate cash flow snapshot: Every business (big and small) should have a sense of its cash flow. Reliable cash flow helps you make more informed decisions—for example, let’s say you want to invest in new software for your company but you don’t have the money on hand to cover the cost. A quick look at your outstanding invoices can help you forecast how much money will be coming in the door in the near future, so you can time your investment accordingly. Formalizing transactions with invoices helps you keep track of your company’s financial health and make informed decisions about upcoming expenses.

  1. Effective financial management: We’re guessing you didn’t start your own business because you love bookkeeping. So eventually, you might decide to offload those pesky invoicing tasks to an employee or outsource to a third-party manager. In that case, having a detailed financial history will be an important piece of context for whoever fills the position. Having an accurate and detailed record of documented invoices by month and client/customer will make that transition smooth and minimize bumps in the road. 

What types of invoices are there?

Although most invoices use a standard format and contain the same overall information, there are different types of invoices used in certain circumstances and transactions. These types of invoices can be used when you need to communicate something specific to your client or customer: 

  1. Standard invoice: This article covered the basis of standard invoicing. 

  1. Credit invoice: You can use this type of invoice when crediting back or refunding your client or customer.

  1. Debit invoice: You can use this type of invoice to adjust an existing bill, typically when the amount owed to your company increases. 

  1. Mixed invoice: These invoices contain a mixture of credits and debits, with the final number being the sum of all lines. Keep in mind the final total of a mixed invoice could be a negative number. 

  1. Timesheet invoice: One of the more straightforward invoices, a timesheet invoice communicates the number of hours worked and the hourly rate for a specific project.

  1. Expense report: This type of invoice is used when seeking reimbursements for business-related expenses that can get billed back to your client or customer.

  1. Pro forma invoice: This is an invoice estimate that predicts the preliminary costs of the sale. It’s not a demand for payment, but it is an agreement to the transaction. A pro forma invoice may need to be altered after the job is completed to reflect the actual costs of the good or service.

  1. Interim invoice: For larger jobs, an interim invoice can be sent to collect funds based on a milestone achieved for the project. This can be a helpful exercise for smaller companies conducting larger jobs, like a marketing agency doing large video productions for a national client.

  1. Final invoice: If a project has required you to send a pro forma invoice and/or interim invoice, then a final invoice can be used for outlining the total costs associated with a project, contract, or sale. 

  1. Past due invoice: If a client hasn’t paid by the due date on a standard invoice then a past due invoice can be sent as a follow-up. A past due invoice would ideally be sent on the first day the payment is late, and include any late fees associated with the delay.

  1. Recurring invoice: A recurring invoice gets sent at the same time each month, for the same service, to the same client or customer. This is common for small businesses engaged in retainer-based relationships, where they are billing their clients or customers for monthly work.

How to level up your invoicing process

Hopscotch makes it super easy to get paid instantly without any fees. When it’s time to send an invoice, you can manage the entire process in a few clicks and keep track of everything in one clear, streamlined ledger. Get started by joining our waitlist.