Although every small business owner needs to send out invoices in order to receive payment for their products or services, the specific type of invoice they use will depend on their business.
Today we’ll look at the 10 most important invoice types that small businesses need in their daily operations.
#1 Proforma Invoice
Perhaps the most popular of all invoices is the proforma invoice, a document that is normally used for two purposes:
- for goods shipped internationally to assert the value to customs offices
- as a quote/estimate, to show what the goods or services will cost
Because of the way the proforma invoice is structured, it describes a commitment from the seller to provide the buyer specific goods at specific prices for specific payment terms.
Because it isn’t a true invoice (more like a purchase order), there should be no taxes or VAT included.
#2 Commercial Invoice
The commercial invoice is used by businesses exporting goods across international borders. The document is required by customs to determine the value of the goods and the necessary duties and taxes that should be applied.
The commercial invoice should include the buyer and seller information, the goods and the country of manufacture. However, it should also include the Harmonized System codes, which are used to classify products to be traded internationally.
#3 Credit note
This document is important in those situations when the seller has made an error in the original invoice, the buyer returned the goods, or in some way the goods or services were not satisfactorily delivered.
The credit note amount will be for the original invoice amount or a lower amount. The seller can refund the money or offer credit to the buyer.
#4 Debit memo
This is the opposite of the credit note. In a debit memo, the buyer has made an error in the original invoice.
The major reasons for this error could be that the buyer did not pay the original invoice at all or did not pay it in full. The debit memo is then sent as a follow-up to reflect the original invoice amount and any (optional) late fees.
However, the debit memo is not commonly used by regular small businesses, as they will simply send the original invoice with any late fee added on.
#5 Timesheet Invoice
This type of invoice is specifically for those people who work on a project or task on an hourly basis. The invoice allows you to record the hours directly on the invoice.
In that way, you can see the timesheet invoice as a combination of the timesheet and invoice, and is useful for expediting the payment process.
This invoice will include:
- your details, as well as any applicable ID number
- the specific dates and times of work for each day
- the total amount of hours worked each day and the hourly rate
#6 Self-billing invoice
The self-billing invoice allows for a buyer to issue the invoice to himself, rather than having to wait for the seller to send it. This helps to expedite the invoicing process for both parties.
After the goods or services are received, he creates the invoice and sends two copies: one to the accounts payable department and the other to the seller.
In the UK, if businesses want to arrange for self-billing, the buyer and seller both have to be VAT registered.
#7 The statement
A statement is decidedly not an invoice, although many businesses use it that way. An invoice, at its most basic, is a non-negotiable request for a payment.
A statement, on the other hand, is an informational document that lists any past unpaid invoices and should not be paid.
The main reason for this is that the buyer may have already sent payment on an invoice that the seller hasn’t yet received. If the buyer submits payment based on the statement, he may be double-paying for the same invoice.
Credit card companies, however, send out statements that are in fact invoices, as you are required to pay them.
#8 Progress Invoicing
This type of invoicing is normal for construction businesses. Its purpose is to receive consistent payments while working on long-term projects that could take months or years to complete.
On the progress invoice, the seller should include
- the original contract amount
- any changes to the amount
- the percentage of the project completed
- what’s currently due
- the total amount still remaining for the project
#9 Recurring invoicing
This is a way for sellers to send automatic invoices to the buyers or customers.
This is the preferred method of invoicing used by subscription services, such as SaaS companies, or cable, phone and utilities.
Instead of having to send out an invoice from scratch and waiting for the customer to pay, the seller can automatically charge the customer (with the customer’s permission of course).
#10 Electronic invoicing
This type of invoicing, usually shortened to e-invoicing, is gaining ground across, as it helps businesses not only save a lot of time but also a lot of money.
It is being pushed forth by many governments, one of which is the EU which aims to have all member governments move to e-invoicing by the end of 2018.
E-invoices are not just digitally-sent invoices, such as PDFs. They have to have structured data in XML or Electronic Data Interchange (EDI) formats or Internet-based web forms that allow for the data to easily be integrated into the customer’s accounts payable systems.
These 10 types of invoices should cover the invoicing needs for most small businesses.
About the Author:
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.