While all small businesses need to send out invoices in order to ensure they receive payment for services rendered or products provided, the specific invoice type they use will differ depending on their business.
Many small business owners use the standard invoice, but there are also many other businesses that require proforma, commercial and other types of invoices.
Today we’ll look at the seven most important invoices that your small business might need.
The proforma invoice is a commonly-used invoice as it can be used for two purposes.
The first purpose is for customs offices to assert the value of goods shipped internationally. The second purpose is to act as a quote or estimate, especially when business want to show the price to their new clients before any purchase is actually made.
While these two forms are common, it should be remembered that a proforma invoice is not a completed document, and therefore should have no taxes or VAT included. Only after the goods or services are delivered should a VAT invoice or standard invoice be sent to the customer.
The commercial invoice is closest to the proforma invoice, except that it is a complete document. It is used by businesses to export goods across international borders and is required by customers in order to assess the value of goods and apply the appropriate duties and taxes.
On occasion, a proforma invoice can be used in place of the commercial invoice, although the commercial invoice is preferred.
On the commercial invoice should be the buyer and seller information, the country of manufacture and necessary details about the goods being shipped. It should also include the appropriate Harmonized System codes, an international 6-digit standard for correctly identifying the types of items being shipped.
Also known as a credit note, this can be seen as an ‘anti-invoice’, in that here the supplier isn’t requesting payment from the customer. Instead, the supplier is informing the customer that payment is owed to the customer, rather than the other way around.
This is because the supplier made an error or caused damage in the delivery of the goods or services. The most common reasons are that:
- The goods were somehow damaged in transit
- The goods or services were below the customer’s standards
- The supplier charged too much on the original invoice
- The supplier did not apply the expected discount rate
The credit memo will then be for the original amount or partial amount, either as a cash refund or credit for the customer’s next purchase.
The timesheet invoice is an invoice used for suppliers who charge their customers for work done on an hourly basis. It’s best to think of it as a combination of a timesheet and an invoice.
Instead of having to submit two documents to the customer, one being the invoice and the other documentation of hours worked, the supplier will do both at once.
The supplier fills in the details as he or she would on a standard invoice, but then would need to add the dates and times worked each day, as well as the total hours, hourly rate and total amount owed for the invoicing period.
This minimizes the chance of the customer losing one of the documents, and makes it easier to expedite the processing and payment of the invoice.
Rather than being just a type of invoice, self-billing is more a type of invoice processing. In this, the customer actually creates the invoice himself and sends one copy to his accounting department and another copy to the supplier.
This is mean to expedite the invoice process. Instead of having to wait for the invoice from the supplier before he can pay it, he can just create it and have it processed by accounts payable when he receives the products or services.
This type of invoicing is gaining ground around the world. In the UK, for example, to arrange self-billing, both the customer and supplier must be VAT-registered.
The statement is often confused for a standard invoice. Suppliers usually send statements to their customers to itemize the unpaid or partially unpaid invoices the customer hasn’t paid yet.
The statement is therefore just an informational document, rather than a request for payment which is what a standard invoice actually is.
Furthermore, statements are usually sent at regular intervals, for example monthly, whereas invoices are sent based on the goods or services purchased.
However, credit card companies do send out regular, monthly statements that are in fact invoices, seeing as they have to be paid by a certain date.
This last type of invoicing is used by suppliers that are engaged in long-term projects, such as those in the construction industry.
Rather than having to wait for the end of the project for payment, the supplier will break up the project into different stages and send an invoice at the end of each.
Each stage will be assessed for quality and timeliness and have agreed upon rates or set prices. The progress invoice should include the amount already paid, the percentage of the project completed, the amount currently due, and the total remaining for the project.
That allows for benefits for both parties: the suppler doesn’t have to wait for payment until the end of the project, and the customer doesn’t have to pay the full price upfront.
These invoice types may be important for your daily operations, depending on what type of business you are in. They could help you save time, money, energy and even improve your cash flow.
Bernard Meyer is the Head of Marketing at InvoiceBerry, the online invoicing software committed to helping small business owners send out invoices quickly and professionally. You can also find him on Twitter and LinkedIn.