Invoicing Guide for Sole Proprietors

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As a sole proprietor, one must specify the goods delivered/services performed, the amount charged, and how the clients or customers should pay them for the invoice. The invoice informs the client of the due date for payment towards the products and services that sole traders provided.

Contents on an invoice issued by sole proprietors

After the sole proprietor sells the goods and services, he or she needs to send an invoice or a bill to the customer. A commercial document that a seller issues to a buyer for a sale transaction is an invoice. 

The sole trader need not have a limited company set up to create invoices. Several businesses across the country operate as sole proprietors and can still legally issue invoices in the name of customers or clients. 

A sole proprietor must include business information in the invoices. Its contents include the name of a sole proprietor or the name of the entity, address, invoice number, contact information, payment information, and customer information. 

An invoice shall include tax information in addition to payment information, where the seller is registered under the GST law. In such cases, the invoice raised must be compliant with Section 31 of the CGST Act and Chapter VI of the CGST Rules.

Generally, the following fields must be reported on an invoice by the sole trader:

  • Add the word ‘Invoice’ on the top of the invoice document.
  • Invoice date
  • Unique invoice number
  • Any business registration number, as issued by the authority
  • Business name or trade name, address and contact details
  • Buyer’s name and address
  • Item description for goods and services sold
  • Date of delivery of goods or services and address
  • Rate, quantity and value for each item and total
  • Tax rate and amount if applicable
  • Total invoice amount payable
  • Payment mode and bank account information for payment
  • Signature of authorised person of the sole proprietorship business

In addition to the above, GST law mandates the reporting of specific fields in the invoice by its registered taxpayers.

  • Mention the seller’s GSTIN and buyer’s GSTIN if applicable
  • HSN codes must be reported for every item. It is prescribed by law as follows:
Edit
Total turnover* (Rs)Invoice document typeInvoice document type
Up to 5 croreMandatory for B2B tax invoicesUp to 4 digits
Optional for B2C tax invoicesUp to 4 digits
More than 5 croreMandatory for all invoicesUp to 6 digits

*To be referred for the previous financial year. For instance, to report invoice in FY 2021-22, the turnover to be referred must be FY 2020-21.

  • Place of supply, with the name of the state or name of the Union Territory for interstate sales.
  • Whether tax is payable under the reverse charge mechanism.
  • If e-invoicing applies to the sole proprietorship business, then the QR code and Invoice Reference Number (IRN) should be generated from the e-invoice portal and displayed on every Business-to-Business (B2B) invoice issued.
  • If the sole trader is a composition taxpayer under the GST law, a bill of supply is issued instead of an invoice. Contents remain mostly the same as the invoice. However, the bill will not have GST charged and must bear a note at the top stating ‘Composition taxable person, not liable to collect tax’.

How to create an invoice or bill as a sole trader?

It is always advisable to maintain a standard process of raising invoices, assigning the particular team responsible for the same, and staying up-to-date with legal compliances for invoicing. It applies to all business entities, irrespective of the nature of the constitution of the business or its size. Likewise, sole traders or sole proprietors must also have a process and team in place within the organisation. 

Following are few tips for invoicing or billing by a sole trader:

Have a standard header on every invoice with business logo

The sole trader must have a common header for all invoices with the business logo or brand printed with specific colors and fonts. Also, it is better that sole proprietors follow a consistent format or print template of invoice issued under a trade name or brand name. 

Automate Invoicing for Sole Proprietorship Business

Many small businesses that have only a handful of invoices to create periodically may still use excel based or word based files to create and print invoices. Alternatively, larger businesses or businesses having higher sales daily may have to go for invoicing software or applications. 

If an invoice raised has any sections or fields missing or having errors, it does not look good in the eyes of customers and may affect the business contracts as well. Furthermore, it may lead to disputes too. Hence, the organisation must refrain from the conventional hand-written or manual invoicing and move to an electronic system for invoicing needs. It will help in tracking invoices, faster creation of more accurate invoices and may help in the bookkeeping process. Furthermore, it would allow sharing of invoices in electronic mode via email or through B2B integration systems. 

ClearOne Invoicing software by ClearTax provides intuitive, professional and comprehensive GST invoicing. It allows one to create customised professional invoices and one can be compliant with all the regulations with GSTN and regular software updates with the latest changes.

Maintain master data for easy and faster invoicing

A sole proprietor must create a master data repository containing separate lists of products or services being sold, its rate per unit, along with HSN code and GST rate, customer information such as name, GSTIN, address and contact details, discount or offer schemes that are active, customer-wise purchase order history, etc.

Maker-checker system for accurate invoicing & avoid frauds

A sole trader must always ensure to have the maker-checker system followed in the organisation for invoicing. While one personnel creates an invoice, there must be a higher authority such as the manager to authorise the invoices created before it is issued to the buyer.  

Enter few details on Invoices for easier payment follow up

Details such as invoice due date, invoice amount due from the customer, mode of payment expected out of the customer along with bank account details, if necessary, must be mentioned on every invoice raised.

Few customers may partially pay the sole trader at the time of raising the invoice. In such cases, the ‘amount due’ field will help the sole trader to follow up with the customer easily for balance dues.

Providing modes of payment available for customers as a part of the invoice can also fasten the process of realising the invoice or bill dues.

Payment information on bill raised by a sole proprietor

Bank transfers are one of the most used payment options. If sole traders want to accept bank payments, they must make sure to include the following information on the invoice.

  • Bank Name 
  • Name of the Account Holder
  • Bank Account Number
  • IFSC code

If the customer plans to write a cheque or Demand Draft (DD) for payment, then the beneficiary name could also be provided by the sole trader or sole proprietor on the invoice.

In case the sole proprietor wants the buyer to pay via UPI mode, then necessary details must be mentioned on the invoice. Alternatively, he may request for a cash payment as well.

Sole proprietors can optionally include payment terms in addition to the bank information. For instance, payment at the end of 30 or 45 days or as invoice due date can be clearly defined on the invoice.

Sellers must be courteous and thank the consumer for their business, as well as offer other items or services, at the bottom of the invoice. Being grateful and kind not only helps them get paid faster but also helps them keep good relationships with their customers.