Invoice Basics

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08 min read

Invoicing is the most essential and basic activity in any business. Invoices are the source documents for transactions that happened in any business. One can use the invoices to record the transactions in their books, track inventory, and collect dues from customers. In general business scenarios, many terms are used while creating, sending or dealing with invoices. This article explains the basic terms used in invoicing and billing.

Accounting period

An accounting period stands for a particular period during which financial transactions occur and are recorded in the books of accounts. Usually, in India, a financial year is considered an accounting period while preparing financial statements. For example, April 2021 to March 2022 will be considered as accounting period 2021-22.

PO number

PO stands for a purchase order, and a purchaser of goods or services raises it. A unique PO number helps in identifying a purchase order and matching an invoice to a purchase order.

Invoice date

The invoice date denotes the date of the transaction. It is the base for recording a transaction in the books of accounts. The invoice date is important in deciding the month under which the transaction falls and recording the transaction in that month. Also, the invoice date is important to reckon the invoice due date. Under the GST law, there is a time limit within which invoices must be raised to supply goods and services.

Invoice number

The invoice number indicates the serial number of the invoice in a particular period. Under the Goods and Services Tax (GST) law, the invoice number should be unique, and the sequence has to be changed for each financial year. The unique invoice number also helps in easy tracking. 

Bill from and ship from

‘Bill from’ means the address of the supplier of goods or services. Usually, for the ‘bill from’, the address will be the office address. However, ‘ship from’ means from which address the goods are being supplied or the origin. ‘Bill from’ and ‘ship from’ addresses will be the same if the goods are supplied from the office address. However, the ‘ship from’ address will vary if the goods are supplied from a factory, warehouse or godown, situated in a different location from the office address or billing address.

Bill to and ship to

‘Bill to’ means the recipient’s address, and ‘ship to’ refers to the address to which goods are sent or the destination. The ‘bill to’ and ‘ship to’ addresses will vary when a recipient requests to send goods to a work location, agent’s address, job worker, etc.

GSTIN/TIN

GSTIN stands for Goods and Service Tax Identification Number, and it is a 15-digit PAN-based unique identification number allotted to every registered person under GST. It is also called a GST number. As per GST law, it is mandatory to mention GSTIN on the invoices issued by GST registered taxpayers. The GSTIN also helps in tracking the tax credits for the buyers.

TIN stands for Taxpayer Identification Number, which is an 11-digit numeric code. Even after the introduction of GST, this code is to be used by those who fall under excise and state-levy taxes which are not subsumed under GST.

Taxable supplies

The supplies that attract tax under GST or Customs laws are termed taxable supplies. The applicable tax rate and the tax amount should be mentioned whenever taxable supplies are mentioned in the invoice.

Exempt supplies

The supplies that are exempt from the GST are termed exempt supplies. These supplies include supplies exempted under GST law, supplies attracting nil GST rate and non-GST supplies. The tax amount should be zero whenever exempt supplies are mentioned in an invoice.

Line items

Line items mean the number of different items mentioned in the same invoice. The number of line items will be one only if one type of good/service is supplied. The number of line items will increase when more goods/services are mentioned in a single invoice. 

HSN code

HSN code stands for “Harmonized System of Nomenclature”. The HSN system has been introduced for the systematic classification of goods. Similarly, Services Accounting Code (SAC) is available for the classification of services. The HSN and SAC codes are crucial as the GST rates are linked to these codes.

Item price

Item price denotes the rate or price of the particular product or service. The item price has to be linked with a particular product or service. The supplier of goods or services determines the item price.

Tax rate and tax amount

The tax rate is the rate decided by the government to be charged on the good or service. The tax amount is a result of multiplying the item price with the tax rate. The tax amount should be separately mentioned as Central GST, States GST, Integrated GST or GST Cess. Further, if a transaction is chargeable to customs, the invoice must detail the Basic Customs Duty (BCD), Additional Customs Duty (ACD), Anti Dumping Duty (ADD) surcharge, etc.

Additional charges

Additional charges include packing charges, transportation charges, weighbridge charges, etc. The supplier and recipient can decide between them on bearing the additional charges.

Discount

Usually, businesses provide discounts to their customers to increase sales. Discount can be of a percentage of sale value or a fixed value. The discount can be decided by the seller of the goods or services.

Invoice amount

It is the total amount to be paid by the recipient of goods/services. The total invoice amount will be arrived at by adding the amounts mentioned for all the line items, additional charges and deducting discounts after that.

Authorised Signature

The invoice is not valid unless there is an authorised signature, and this should be done by authorised personnel only. The signature indicates that the supply of goods or services is 

Invoice due date

The invoice due date denotes the date by which the buyer of the goods has to make the payment. This due date is important in tracking the payments and charging the interest/late fee in case of delayed payment. Also, the seller can use this date to allow discounts for early payments.

Invoice payment terms and conditions

The seller should keep the following points in payment terms and conditions:

  • Terms of sale
  • Payment terms including late payment penalty
  • Warranty terms
  • Return or replacement terms
  • Legal jurisdiction details

The seller should write payment terms to avoid poor payments from clients, legal implications, unwanted payment follow-ups, etc.

Common invoice payment terms

The following are some of the common invoice payment terms:

Net monthly accountPayment is due on the last day of the month following the invoice’s date.
PIAPayment in advance
Net 7Payment after seven days of the invoice date
Net 10Payment after 10 days of the invoice date
Net 30Payment after 30 days of the invoice date
Net 60Payment after 60 days of the invoice date
Net 90Payment after 90 days of the invoice date
EOMEnd of month
21 MFI21st of the month following invoice date
1% 10 Net 301% discount if payment is received within ten days; otherwise, payment 30 days after the invoice date
CODCash on delivery
Cash accountNo credit and account conducted on a cash basis
Letter of creditA documentary credit confirmed by a bank
Bill of exchangeA promise to pay at a later date
CNDCash next delivery
CBSCash before shipment
CIACash in advance
CWOCash with order
1MDMonthly credit payment of a full month’s supply
2MDAs mentioned above, plus an extra calendar month
ContraPayment from the customer is offset against the value of supplies purchased from the customer
Stage paymentPayment of agreed amounts at stage

Invoicing under GST

A tax invoice is an important and essential document under Goods and Services Tax (GST). Invoice is not only evidence for the supply of goods or services, but it is also a primary document to avail Input Tax Credit (ITC) by the recipient. A registered person cannot avail of ITC unless he owns a tax invoice or a debit note.

As per GST law, GST is chargeable at the time of supply. Hence, the invoice is an important indicator of the time of supply. Thus, a tax invoice has to be given importance as it is the primary document evidencing the supply and is vital for availing ITC.

Advantages of using ClearOne for invoicing

The following are few advantages of using ClearOne for invoicing:

  • Helps in creating and adding fields as per the business requirements.
  • Auto-populates customers’ and item details on the invoice.
  • It helps in an easy lookup of HSN codes without errors.
  • Ensures to stay up-to-date with the latest government rules.
  • Allows quick and easy sharing of invoices with customers.
  • Get easy access to GST, e-way bill and e-invoicing on tap.