What are the parts of an Invoice? Invoice checklist

Chances are you’re going to stumble across an invoice at some point in your professional career. When enterprises conduct trade among one another, invoices are the standard way to pay for an order. Understanding what you’re looking at when handling invoices will help you pinpoint ways to streamline your payments process, creating a more efficient and cost-effective business. In this article, we’ll break down the parts of an invoice, so you can confidently process payments from your customers. 

What is the purpose of an invoice?

An invoice is a way for companies to track payments for orders and monitor their cash flow. Invoices serve as a record of sale and set payment terms that organizations both agree to adhere to to ensure payment for orders and services. They grant a way for both parties to track:

• The sell date of the good or service
• How much the organization is being charged for the good or service
• Outstanding balances the organization owe

The other purpose of an invoice is to protect your enterprise in the event of an audit. Invoices provide a receipt of transactions. When properly filled out, invoices can provide a detailed description of your cash flow and where it originates. 

When it comes to documentation, the invoice amount is entered as Accounts Payable on the buyer’s end. On the seller side, the invoice amount is entered in the Accounts Receivable column. 

What are the parts of an invoice? 

There are five parts to an invoice that are all crucial for creating an accurate invoice. Put together; these things provide a detailed overview of the entire transaction, including the order, payment terms, and total amount due. These five sections include: 

1. The invoice number 

For every invoice you issue, you should assign an invoice number. This creates a trail of information for you and your customer’s tax and accounting records. Normally, invoices are not due right after they are issued. There are various payment terms you can set up to provide flexibility to your customers, which we’ll dive deeper into in a moment. 

2. The date

The date on the invoice refers to the day the seller officially recognizes it as the transaction date. This date is the same as the date the seller bills the customer. A crucial piece of information, the invoice date, helps to define the payment due date and credit duration clearly. 

3. Contact information for the business

This information is very important for ensuring organizations can contact one another in case of questions or troubles. Commonly, both the buyer’s and seller’s information will be included in the contact information area. Typically, this information includes:

• The business name
• The business address
• A phone number for contacting the business
• An email address for communicating with the business

4. A description of the goods or services

For every product or service you provide a customer, you need to add it as a line item on invoices. This helps create a detailed explanation of the products and services for which the customer is being charged. On each line item, include the price and quantity associated with it. At the bottom of your invoice, add a subtotal of all the above line items, list any tax charges the customer will be charged, followed by the full amount owed. 

5. Payment terms

For accurate records for both parties, the terms of payment need to be clearly stated. These are the terms and conditions the buyer agreed to pay within, specifying the time period the customer has to complete payment. Often, it is a strong strategic move to create payment terms that strongly encourage early payments to increase the likelihood of being paid. Additionally, payment terms dictate how late payments will be handled. 

Common invoice payment terms include:

• Payment in advance (PIA) — means you ask customers to pay the full amount before the good or service is delivered.
• Cash in advance (CIA) — like PIA, cash in advance means you expect a full payment, in cash, before the good or service is delivered.
• Upon receipt — means once the customer is billed and receives the invoice, they are expected to pay in full immediately.
• Net XX — “net” refers to the number of days you expect to receive full payment after billing the customer. Often, 30 days is used as a due date, which means that after 30 days from receiving the invoice or Net 30,  the seller expects the entire payment. 
• End of month (EOM) — this means that the seller expects full payment by the end of the month listed on the invoice date

A visual example of an invoice:

Tips for efficiently processing invoices.

When it comes to processing your invoices, the best bet is to embrace a digital-first approach. By utilizing advanced technologies and digital platforms, your organization can save time and money. Without the need for manual processing and paper processes, your company can more quickly process and track invoices for added transparency and accountability in your AP team. A digital platform also helps streamline the communication process between you and your customers, allowing you to address their comments and needs more quickly. 

E invoicing also can help you to offer early payment programs for your customers, encouraging speedier payments. By creating an easy-to-use and enjoyable payment process, your customers are more likely to complete payments ahead of time. This creates stronger customer relationships and helps to improve your overall transaction. 

Invoices are an excellent way for your business to handle transactions with customers. By providing documentation, you can accurately track your orders and payment cycles. And, when created accurately, invoices provide security with your transactions. As you handle invoices in your organization, stick to this guide to ensure your invoices are compliant and informative for you and your customers. 

Tradeshift has years of experience handling invoicing and accounts payable processes. With our Tradeshift Pay product in place to assist companies in processing invoices in a timely and cost-effective manner, we can help you make shift happen in your organization. For more information about our software solutions, reach out to our team of experts.