How to create an invoice

What is an invoice?

According to the Oxford English Dictionary, an invoice is: A list of goods sent, or services provided, with a statement of the sum due for these. In other words, a bill.

It’s also an important legal document that states what you provided and makes a formal request for payment. If your invoice is easy to understand, error-free and includes all the information your customer needs, then it will help speed payment. If there are any disputes, then your invoice is a record of what was provided, and the payment requested.

What every invoice needs

Whatever type of business you have (sole trader or limited company, VAT registered or not), you must include the following on every invoice:

• “Invoice” – every invoice must clearly include the word “invoice”. Common sense suggests you have that in large letters near the top.
• A unique reference number – each invoice must have a unique number. If your business is registered for VAT then the numbering must be sequential, with no gaps.
• Your business name, address and contact information – and, just to be clear, that should be a real, postal address. An email or web address isn’t enough.
• The customer’s name and address
• A clear description of what you are charging for
• Invoice date – this is the date on which the invoice is created and from which payment is due.
• The date the goods or services were provided – this may be different from the invoice date.
• The amount being charged, VAT amount and total amount due – only apply VAT if your business is VAT registered and VAT is applicable to the sale.

If you’re a sole trader, you also need the following:

• Your name and any business name you use – for example, “John Smith trading as Elegant Fireplaces”
• Address - where any legal documents can be delivered

If your business is a limited company, you must include:

• Full company name – as shown on the company’s certificate of incorporation
• Directors – You do not need to include the name(s) of company directors on invoices, but if you do, you must list all directors

If your business is VAT registered

If your business is VAT registered (whether a sole trader or limited company), there are additional requirements:

• Invoice numbers must be sequential – as noted above. If you cancel or credit an invoice, you must retain a copy for your records
• VAT number – every invoice must show your VAT registration number
• Price per item, excluding VAT
• Quantity of each type of item
• Rate of discount (if any) per item
• Rate of VAT charged per item – where items are zero-rated or exempt, it must be clear that there is no VAT charged on those items
• The total amount of VAT chargeable – you can invoice in any currency you like but the VAT chargeable must always be shown in sterling

If the value is less than £250

If you are a VAT-registered business and the value you are invoicing is less than £250, you have the option of issuing a VAT simplified invoice. On a VAT simplified invoice:

• No need for customer name and address
• Itemised pricing and VAT can be simplified to the following:
• For each VAT rate band, show the total amount payable (including VAT) and the VAT rate applicable
• A VAT simplified invoice cannot be used for VAT exempt supplies

Other things to consider:

Keep accurate records

Accurate record-keeping is important for tax purposes and so that you know who has paid and who still owes you money. Your accountant will also thank you.

Get paid on time

Help your customers to pay you on time. Inaccurate or unclear invoices can cause delay, so make sure that your invoice clearly shows what was sold and describes it in a way that the customer will recognise. If the customer has given you a purchase order or reference, make sure you include that on the invoice. Make it simple for your customers to pay you. If you accept credit card or PayPal payments, state this on the invoice. Include your bank details if you (or the customer) prefer bank transfer payments.

Present a professional image

Your invoice is the last part of your transaction with the customer so use it to make a lasting impression with a professional, business-like invoice. You could even include your logo.

Belmont Sawyer’s Micheala says:

Ways to create an invoice

There are rules about what to include, but no rules about how to create an invoice. You don’t need expensive (and sometimes complicated) accounting software, a word processing or spreadsheet package, or even an old-fashioned typewriter would do.

Many businesses use free invoice templates that are available online. These vary from simple fill-in-the-blanks templates to services like PayPal Invoicing that help you get paid quicker, keep track of outstanding debts and nudge any late payers.

PayPal Invoicing

PayPal Invoicing is a free online tool that lets you create and send professional-looking invoices that help you get paid faster. Customers can pay by any method, bank transfer, cheque or cash as well as PayPal or credit card and they don’t need to have a PayPal account. Invoices are sent by email and recorded in an invoice list where you can keep track of payments and money owed.

PayPal’s free invoice template can be easily tailored to your business needs, allowing you to create invoices showing a charge per hour (useful for freelancers), per item (handy for goods sold) or a simple description.

The invoice template includes all the legal requirements as well as space for important additional information like a purchase order number, payment terms and any additional notes you wish to include.

This short video shows how easy it is to create your own invoice template with PayPal Invoicing. It guides you through the process from creation, to the customer receiving their emailed invoice, to you receiving and recording the payment..

Further information

When you create invoices for customers it’s important to get it right. To learn more about the legal requirements check out these UK Government sites:

• https://www.gov.uk/invoicing-and-taking-payment-from-customers
• https://www.gov.uk/vat-record-keeping/vat-invoices

To learn more about PayPal Invoicing and to try creating your own customised invoices, click here.

On the move? Take a look at the PayPal Business mobile app which lets you send invoices wherever your business takes you.