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Invoice as legal document & Legal Contract

Updated on:  

08 min read

An invoice is a crucial document for conducting business. It evidences a business transaction but it is enforceable by law. The article gives more information about the same along with the legal contracts.

Is an Invoice a legally binding document?

An invoice by itself is not a legal document. While invoicing is a vital accounting practice for businesses, invoices are not a legally enforceable contract between the company and its client. 

An invoice allows far too much space for error to be used as a legal document. The invoice itself contains no evidence that both parties have consented to the terms. Small businesses should have professional contracts, which, unlike invoices, may serve as legally binding agreements to ensure clients pay in full and within the deadline.

However, ever since e-invoicing had been implemented in October 2020, Indian businesses must note the impact. e-Invoices verified, validated, and authenticated by the GST Network (GSTN) can be considered as a vital source of evidence for a legal dispute but are not legally binding.

Will a text message be considered legally binding?

Even seemingly inconsequential agreements, such as those stated in text messages and emails, can be legally binding contracts. Contrary to popular opinion, a client or business owner does not need to sign a document for it to be legally binding. Even though the language is informal, a text message agreement might serve as a contract between the two parties in the transaction.

In the eyes of the law, a text message agreement, even if the language is informal, can nevertheless be considered a contract between the two parties.

Do handwritten documents become legally binding?

Suppose the paper specifies particular contract clauses and both parties sign off that they agree to the contract terms. In that case, a handwritten contract can be legally binding. Although handwritten contracts are permissible, formal, typed contracts are the norm for commercial agreements. You or your business should develop formal contracts as part of its standard operating procedures.

Points to create a legally binding contract

The Indian Contract Act, 1872, which regulates Indian contract law, prescribes the law relating to contracts in India. The Act is founded on ‘English Common Law’ principles. It is relevant to all Indian states and Union Territories. It establishes the conditions under which contracts made between the contracting parties are legally enforceable in the court of law.

The term ‘Contract’ is defined as an agreement that is enforceable by the law. Thus, there must be an agreement that should be enforceable by law for the contract to sustain. It must be noted that if the contract is enforceable by law for one party but not to the other, it is a voidable contract.

Invoices aren’t legally enforceable on their own. Still, small businesses and freelancers can use them to build legally binding contracts that hold their clients liable for paying according to the contract’s payment terms.

According to the Indian Contract Act, a contract needs to include two fundamental aspects to be recognised as legally legitimate. The following are the two conditions that must be met for a contract to be considered a legal document:

  • An offer made by one person and accepted by another must be accepted by all parties involved.
  • Something of value must be exchanged as ‘lawful consideration’ for something of equal or greater worth, such as products, services, or cash.

For example, if you’re a freelance copywriter, your legally enforceable contract would need you to form an agreement with your client that you’ll supply copywriting services to them in exchange for a predetermined amount of money.

Critical aspects of an ideal legal contract

The following are the fundamental factors that must be included for a contract to be regarded legally binding:

  • Offer and acceptance
  • Lawful Consideration
  • Mutuality of obligation
  • Competency and capacity

A contract can be considered legally binding if all of the criteria mentioned above are satisfied.

In a typical freelance contract, the following terms and clauses must be included:

  • Rates and prices
  • Payment and invoice terms
  • Revisional conditions
  • Early termination fee
  • Copyright ownership terms