An invoice or bill is an important written document that indicates the sale or supply by one business to another business or consumer. It contains information about the particular sale transaction, such as buyer’s details, quantity, value, tax, and payment terms.

Many countries have laws governing the issue of invoice or bill, mostly associated with the indirect tax laws of that country. For instance, in India, the Goods and Services Tax (GST) law has elaborate laws on invoicing format and issue of invoice or bill. Let’s dive into the details of invoicing and billing.

What is an invoice?

An invoice is a document that describes the goods and services that a company offers to a customer and specifies the customer’s responsibility to pay for those products and services. Invoices are the foundation of a small business’ accounting system. An invoice details how much your client owes you when payment is due and what services you rendered.

Invoices are the business records that allow companies to get paid for their services, so invoicing is critical for small businesses. Invoice can be defined as “a list of goods sent or services provided, with a statement of the sum due for these; a bill.”, as per the Oxford English Dictionary. 

Who uses an invoice, and what is the purpose?

For accounting, invoices are used as a source document. Invoices are primarily used for keeping track of all the sales transactions by any business organisation with its customers. 

It is issued by every business and professional to keep track of sales made and services provided. Businesses use invoices for several reasons, such as follows:

  • Invoice forms the basis for requesting clients or customers to make payments on time.
  • To keep an account of the sales or supplies. 
  • To track the inventory of the business.
  • Invoice can be used as historical data to predict future revenue.
  • To keep track of business income for tax purposes.

When is an invoice raised and issued?

In general trade parlance, for the supply of goods, invoices are raised as soon as the goods are delivered with a usual credit period ranging up to 30 days from the invoice date. 

When it comes to the rendering of services,  invoices must be raised monthly by the end of the month. Again, a 30-day credit period is applied from the date of the invoice.

However, the time of raising tax invoices is generally determined by the GST law. There are separate time limits to issue the invoices for the supply of goods and services. Read our article on the time limit to issue invoices and bill of supply to know more about it.

What is an invoice due date?

When it comes to invoicing, including a due date will help facilitate prompt payment.

In a general business context, the due date refers to the latest date by when a payment can be made on an invoice before it becomes overdue or late. These dates signify that the payment is due and will result in several penalties and interest if the payment is not received by the due date.

Since an invoice is a legal document that is part of a sale, including the due date in the invoice will keep the consumer informed. It eliminates any doubt about when the payment is due and eliminates the possibility of denying information about the payment.

Indian laws governing invoicing

If you have a GST registered business in India, you have to provide GST compliant invoices to your customers to sell services or goods. There is no particular format notified for an invoice. However, the invoice must have specific fields compulsorily given in Rule 46 of the CGST Rules.

Starting 1st October 2020, the country has moved from voluntary to mandatory e-invoicing requirements, being implemented in a phased manner based on turnover. e-Invoicing involves submitting an already generated standard invoice on a common e-invoice portal or invoice registration portal for validation and authentication by the GST Network. 

Under GST, a tax invoice acts as evidence for supply and becomes a crucial document for the buyer or recipient to claim Input Tax Credit (ITC). It is mentioned under Section 16 of the CGST Act that the recipient should hold an invoice to claim the ITC.

Apart from GST, the Indian Customs law refers to commercial invoices for import and exports. According to current Customs procedures, an importer or exporter must send a commercial invoice and packing list along with the Customs declaration form, i.e. Bill of Entry/Shipping Bill, for both import and export. 

The commercial invoice and the packing list are essential for Customs purposes, as the former proves the value of the imported/exported products. At the same time, the latter makes examination of quantity and duty easier. 

What are the various types of an invoice?

The different types of invoices that businesses can raise on their clients or customers. 

A standard invoice is the most common form of invoice used mainly by small businesses and flexible to fit in most industries and billing cycles. 

Next on the list is credit notes and debit notes. It is also known by names such as credit memo and debit memo. Credit and debit notes are used for decreasing value and increasing values of previously raised invoices, respectively. 

For instance, credit notes are used while the business wants to pass on a discount or provide a refund to its customers or buyers. On the other hand, debit notes are used to increase the quantity or value of the original invoice.

Another type of invoice is the pro forma invoice. A pro forma invoice is an estimation that a company sends to a customer before delivering services. A pro forma invoice gives the client an estimation of the cost of the work that needs to be done. When a project is completed, pro forma invoices need to be adjusted to represent the hours worked accurately.

A commercial invoice is a document provided by a company for products it sells to consumers worldwide. Commercial invoices provide information about the sale that is required to calculate customs duties for cross-border transactions.

A timesheet is an invoice used when a company or employee bills depending on the number of hours they work and their hourly rate of pay. Contract workers who are paid hourly by their contractor use timesheets.

There are other types of the invoice such as expense report, interim invoice, final invoice, past due invoice, recurring invoice and e-invoice.

Ideal format and contents of an invoice

When selecting the best invoice template for your business’s invoicing, it’s critical to think about the services or supplies, your client’s needs, and your company’s or business objectives.

Finding the best invoice boils down to selecting a format that allows you to bill for your services while still receiving payment on time. A suitable invoice format is created with your requirements in mind so that you can keep track of your invoicing.

You can bill clients for your supplies or sales, arrange account details, get paid correctly, and have all of the information you need, including tax details, with a professionally formatted invoice.

Both charging for your supplies and receiving payment from your clients or customers can be made easy with the right invoice format. However, you must first format and customise your invoice to meet your requirements.

You should format your invoice with all relevant information to ensure that you get paid accurately and on time. This knowledge will not only help your clients pay you, but it will also help you organise your company finances. Your invoice would be more structured and streamlined if you use the correct format.

Apart from business and customer needs, the organisation must abide by the GST laws and e-invoicing rules, wherever it applies. 

An ideal invoice will have the following contents:

  • A header with your business name and logo
  • Invoice number or a unique identifier
  • Your business location and information
  • Invoice date
  • Description of goods or services sold and quantity
  • Additional charges, fees or taxes 
  • Total amount due
  • Payment terms
  • Due dates

A tax invoice should have the following components:

  • Name, address, and GSTIN of the supplier or seller
  • Name, address, and GSTIN of the recipient or buyer, if it’s registered under GST
  • HSN code or SAC for goods and services
  • Invoice number, serially numbered and unique in every financial year
  • Type of invoices such as a tax invoice, supplementary invoice or revised invoice
  • Description of goods or services supplied
  • Units or quantity of goods and services
  • Tax rate for every item on the invoice
  • Amount of CGST, SGST, IGST or UTGST in separate columns
  • State of supply and place of supply
  • Total amount of goods and services supplied
  • Delivery address, in case it is not the same as the place of supply
  • If a reverse charge is applicable, then it must be duly mentioned
  • Digital signature of the supplier or any authorised person

An ideal GST invoice generated by invoicing software looks as follows:

Why is it important to raise invoices electronically?

An electronic invoice is developed using the seller’s invoicing system, an online bank, or a web-based form. The e-invoice file may then be downloaded or directly forwarded to the buyer’s software. Further, the invoice created electronically using invoice software can automatically form a base for ledger creation and accounting of the buyer’s account or debtor’s account. 

Issues such as manual data entry errors, gaps in accuracy checks, and software swapping can be avoided with electronically generated invoice or e-invoicing. For this to happen, the invoice must be in a standardised format that the buyer’s system can understand. 

E-invoice is not scanned paper invoices or documents processed with optical character recognition. Further, it cannot be in formats such as PDF, Excel or Word, all of which involve manual intervention.

How does ClearOne help in smart and easy invoicing?

ClearOne Invoicing software helps businesses and professionals in the following ways:

  • Choose from multiple invoice templates as per one’s business needs
  • Helps in creating and adding fields in the invoice that suits one’s business needs
  • Auto-populates customers’ & item details on the invoice
  • Helps in an easy lookup of HSN codes to ensure no errors
  • Ensures to stay up-to-date with latest government regulations & is future proof
  • Allows quick and easy sharing of documents with customers
  • Get access to GST, e-way bill and e-invoicing on tap

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