Which Invoice Method Should Small Businesses Use?
Last editedDec 20222 min read
An efficient invoicing system is essential for any small business, but there are many different types of invoices to choose from. Should you send invoices before or after a project’s completed? Which payment terms should you use? Which delivery method is best? These are just a few factors to consider when working out the best invoice method for your small business. In this guide, we’ll cover the different types of invoices to help you find the right fit.
Understanding purchase vs sales invoices
Standard invoices display basic information related to payment, including:
Your business’s name and contact details
Your customer’s name and contact details
Unique invoice number
Money owed by the customer for receipt of services
Payment due date and accepted methods
One of the first distinctions to make in invoicing is the difference between purchase and sales invoices.
A purchase invoice is created by the seller to show all goods and services, their sales price, and the quantity sold to the buyer. This serves as a commercial document and proof of purchase.
A sales invoice is created by a business to request payment from the buyer. It also lists the description of goods and services, their quantities, and the total sales price. This type of invoice establishes all payment terms and conditions, showing the customer when and how to pay. Â
What are different types of invoices?
In addition to the types of invoices mentioned above, here are a few different formats and methods that might be useful.
Credit invoice: These are used when you need to issue a discount or refund to your client. Because the client receives money, it will show a negative total amount due.
Debit invoice: These are used to adjust existing bills. For example, you might have agreed upon a set number of hours in your initial contract. Yet during the project, you ended up working for longer, and those hours must be added onto the existing invoice or bill.
Proforma invoice: These are sent before you’ve provided services to the client. It often reflects an estimated cost of the work, to be altered later at the time of completion or delivery.
Recurring invoice: These are usually sent by subscription businesses and freelancers who charge clients a standard amount at periodic intervals.
Timesheet invoice: These are used by businesses that charge a standard pay rate by the hour. They’re used by contractors, freelancers, or hourly-based businesses like consulting firms, lawyers, and marketing agencies.
Commercial invoice: Purchase invoices are examples of commercial invoicing. These often include additional information related to shipping, such as the weight and volume of your goods and their packaging format.
Interim invoice: These are best used for larger projects where your client has agreed to make a series of instalment payments along the way. An interim invoice is used to show the work completed at each interval, helping your business maintain a steady cash flow over time.
Past due invoice: Finally, past due invoices are sent to follow up on a previous invoice. When a client hasn’t paid by the listed due date, you’ll need to send them the information again in the form of a past due invoice. This might include late fees and interest charges as well as the original amount owed.
Which invoice method is best for your business?
The best type of invoice method will depend on your industry, business size, and client needs. Do you perform ongoing services or send one-off orders? Sole traders and freelancers will often use automated recurring invoices, for example. These let you take payment at regular intervals for ongoing projects with your clients.
No matter the invoice method you choose, GoCardless can help. We enable businesses globally to collect recurring invoices with a bank debit solution. For one-off invoice payments, our Instant Bank Pay solution offers a frictionless payment experience using the power of open banking. GoCardless also partners with over 300 integrations, including top accounting and invoicing software like Xero,Salesforce, and Intuit QuickBooks. This lets you manage all different types of invoices from a central dashboard.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.
