For many businesses, invoices are a crucial component of receiving payment. If your business doesn’t have a typical “checkout” experience (e.g., a retail store), invoices fill that gap by giving you a clear way to request payment. They also formalize a transaction by outlining the products or services that the customer has purchased and the payment due, ensuring both parties are on the same page. In this article, we’ll cover the key things you need to know about invoicing, including how it works and the best practices you can implement to ensure you get paid on time.
Key Takeaways
- Businesses send invoices to clients to request payment for the products or services they have provided.
- Invoices are typically sent after a product or service has been delivered; however, it’s not uncommon for a merchant to send an invoice for upfront payment or at specific project milestones.
- Invoices must contain several key pieces of information, including the business’s contact details, the products/services rendered, the cost, payment terms, and other relevant details.
- Manual invoicing can lead to wasted time and human error, which is why businesses should consider using software that automates the invoicing process.
What Is an Invoice?
An invoice is a document that a merchant sends to a customer to request payment for products or services — whether delivered, in progress, or as part of an agreed-upon billing schedule. The invoice contains details about the products or services provided, their costs, the payment due date, and other relevant information.
The primary purpose of an invoice is to document a transaction, ensuring that both the business and the client have a record of the products or services provided and the corresponding amount due. Additionally, invoices enable businesses to track sales and manage their cash flow effectively. Since they contain important information, including client names and sales amounts, invoices also serve as documentation for tax purposes.
Essential Components of an Invoice
Invoice templates vary from one business to another, but generally speaking, all invoices contain the following:
- Contact + Business Information – The name and contact info of the business that sent the invoice.
- Products or Services – An itemized list of the products or services provided
- Dates (Issue, Due Date, Service Dates) – Specific dates, including when the products/services were delivered, the payment due date, and the date the invoice was sent
- Pricing – The cost of the products/services
- Taxes – Any taxes applied on top of the subtotal
- Taxes must be applied in accordance with local, state, and federal tax laws and may vary depending on the type of product being sold and the location.
- Discounts – Any discounts provided to the payer
- Payment Terms – The rules around when and how payment is expected, such as Net 30 or due upon receipt
- Invoice Number – A unique identifier used to track and reference the invoice
Optional Fields That Improve Clarity
Some businesses choose to include additional fields on their invoices to add more context and clarity. They include:
- Purchase Order Reference – A PO number that links the invoice to an approved order
- Payment Instructions or Links – Most online invoices include a payment link or button, depending on the software. This allows customers to pay instantly using their preferred payment method.
- Notes or Terms – Additional details that set expectations, including late fees, scope, or delivery specifics
How Invoices Work (Step-by-Step Process)
The invoicing process is pretty straightforward, and typically follows these steps:
1. Creating the Invoice
The invoicing process begins when the merchant creates the invoice, outlining what the customer is purchasing, the cost, and the payment terms. This typically occurs after the business delivers the product or service, although some merchants opt to send invoices beforehand.
2. Sending the Invoice
The business sends the invoice to the customer, who then reviews and pays the amount due, as specified in their contract and payment terms.
3. Receiving and Processing the Payment
Once the merchant receives the payment, the business applies the amount to the invoice and marks it as paid (either partially or in full).
4. Following Up and Managing Late Payments
If the customer doesn’t pay the invoice on time, the business typically follows up to collect the funds. Most invoicing tools include automated reminders, though merchants can also send follow-up emails or make phone calls to prompt payment.
5. Recording the Invoice for Accounting Purposes
When the invoice is paid, it’s recorded in the business’s accounting system to ensure accurate and up-to-date financial records.
Types of Invoices Business Owners Use
Not all invoices serve the same purpose. Businesses use various invoice types depending on their billing methods and payment frequency. They include:
Standard
- This is the most common type of invoice, used for one-time products or services, often after delivery
Recurring
- Merchants use this invoice for ongoing services or subscriptions billed on a regular schedule.
Pro forma
- A preliminary invoice is sent before work begins to outline expected costs and set pricing expectations.
Credit / Debit
- Used to adjust a previous invoice by issuing a refund, credit, or additional charge.
Invoice vs. Other Payment Documents
Invoices often get confused with other billing documents. It’s worth understanding their differences, so you’ll know when to send the right one.
Invoice vs. Bill
An invoice is typically sent by a business to request payment after goods or services have been delivered, often with specified payment terms. On the other hand, a bill is typically due immediately and appears in everyday transactions, such as utility, restaurant, or medical bills. In short, invoices support delayed payment, while bills generally expect prompt payment.
Invoice vs. Receipt
If the invoice is a document requesting payment, the receipt serves as proof that the payment has been made. A receipt confirms that the customer has actually paid, and it’s used for record-keeping purposes.
Invoice vs. Purchase Order
A purchase order is created by the buyer before the work begins. A PO’s main purpose is to authorize a purchase and lock in pricing before it occurs. An invoice is sent later, after the goods or services have been delivered. While purchase orders approve the expenditure, invoices initiate the actual payment process.
| Document | When It’s Used | Purpose | Key Difference |
| Invoice | After goods or services are delivered | Requests payment from the customer | Includes payment terms and allows delayed payment |
| Bill | At the time of purchase or service | Collects immediate payment | Payment is due right away |
| Receipt | After payment is made | Confirms payment was completed | Proof of payment, not a request |
| Purchase Order (PO) | Before work begins | Authorizes a purchase and locks in pricing | Approves spending, does not request payment |
Payment Terms Explained
Payment terms define the schedule for making payments. They establish clear expectations for both parties. Depending on the type of work and the nature of the customer relationship, businesses can establish different payment terms. Here are the most common ones:
- Net 30 / Net 15 / Due on receipt – Payment is due within a set time frame (e.g., Net 30 = 30 days, Net 15 = 15 days, etc.)
- Advance Payments – If a project requires an upfront commitment, the merchant can set advance payments so the customer pays before work starts.
- Installments – Here, the customer pays parts of the full bill based on milestones (e.g., 50% of a project’s total fee will be paid upfront, and the remaining 50% after delivery)
- Retainers – A retainer is an upfront fee paid to secure ongoing availability or pre-fund future services; how it’s applied and billed can vary by industry or merchant agreement, and it may be separate from standard subscription or milestone invoices.
How Payment Terms Affect Cash Flow & Customer Expectations
Payment terms outline the specific timeframe for making a payment, providing clear guidance for both parties. The customer is aware of when they need to pay, so they can plan for it. Meanwhile, the business owner knows when they can expect the funds, which helps them manage their cash flow.
Why Invoices Are Critical for Business Operations
Invoices aren’t just paper or digital documents. They play a crucial role in cash flow management, tax preparation, client relationships, and other key areas of business. Consider the following.
Cash Flow Stability
- A thriving business requires a steady flow of money. Invoices provide visibility into incoming funds, helping businesses budget, forecast, and plan for growth. Clear invoicing ensures you know when and how much money to expect.
Legal Protection
- Disputes can happen from time to time, and when these situations arise, you need solid documentation to back your case. Invoices create a paper trail that documents when products or services were delivered, the amount due, and payment terms. This documentation helps protect businesses in disputes and supports contract enforcement.
Accurate Tax Reporting
- Invoices simplify accounting and tax preparation by backing up income and expense claims, so you can stay in the IRS’s good graces. They also provide audit-proof documentation for all reported transactions.
Professionalism and Client Trust
- Customers are much more likely to do business with businesses they perceive as credible and reliable. Clear, organized invoices signal professionalism, which builds client trust and encourages timely payments.
How to Make Invoicing Easier (Tools & Best Practices)
The right invoicing process lays the groundwork for prompt payments, improved cash flow, and strong customer relationships. That being said, if you’re not following best practices, invoicing can feel like a chore. Here’s how to make things easier.
Using Invoicing Software to Automate Workflow
Invoices require significant data entry. You need to enter the invoice number, list the products/services provided, and tally the amounts, among other things. Doing all of that manually not only takes a lot of time, but it’s also prone to human error. The good news is that invoicing software automates many of these tedious tasks. It can:
- Automatically generate invoice numbers
- Customize invoice templates
- Calculate taxes and discounts
- Send invoices and reminders automatically
- Integrate with your merchant services solution for faster payment processing
- Sync with your accounting software
- Track invoice status in real time
Reducing Late Payments with Better Processes
It’s an unfortunate fact of doing business, but late payments are common, especially for SMBs. Research by QuickBooks indicates that 56% of small business owners reported being owed money due to unpaid invoices, and 47% had invoices overdue by more than 30 days. [1]QuickBooks. 2025 Small Business Late Payments Report: $17,500 cost of unpaid invoices could slow US small businesses’ growth. Accessed December 30, 2025.
You can avoid late payments by:
- Setting clear payment terms upfront
- Sending invoices as soon as work is completed
- Offering multiple payment options
- Using automated payment reminders
- Following up quickly on overdue invoices
- Requiring deposits or advance payments when appropriate
Avoiding Common Invoicing Mistakes
If your invoices aren’t prepared properly, you can encounter issues such as late payments or client disputes. Here are the common errors to steer clear of:
- Missing or unclear payment terms
- Incorrect pricing or math errors
- Forgetting invoice numbers or dates
- Sending invoices to the wrong contact
- Delaying invoice delivery
- Not tracking unpaid or overdue invoices
Summary: How Invoices Keep Your Business Running Smoothly
Invoices serve many important purposes for businesses. They ensure timely payment, provide a paper trail for legal or tax purposes, and support professional client relationships.
That’s why it’s incredibly important to have well-organized invoicing processes and robust software. The right solution can automate the tedious aspects of invoicing, reduce errors, and streamline cash flow, freeing up time and minimizing human error.
Kurv simplifies billing by bringing invoicing, payments, and tracking into one system. Businesses can send one-time, recurring, or batch invoices in minutes, give customers easy ways to pay via email, text, or QR code, and monitor invoice activity in real time. Automated reminders, discounts, and tax settings reduce manual work, while direct integrations with QuickBooks and Xero help keep records accurate and up to date.
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Frequently Asked Questions
What’s the difference between an invoice and a bill?
Both an invoice and a bill are documents that summarize a purchase and request payment. The main difference is that bills typically require immediate payment and are most often associated with everyday purchases. Invoices, on the other hand, are often sent after goods or services are delivered and include payment terms that allow the customer to pay at a later date.
How long should I give clients to pay an invoice?
That depends on your payment terms. Net 30 is a common payment term for service-based businesses and B2B transactions. But if it makes more sense for your business, you can require payment due on receipt.
When should I send an invoice?
You should send an invoice after delivering the product or service, although you can also send it before the work starts or during a project if you’re working towards specific milestones.
Do invoices serve as legal documents?
Yes, invoices are considered legal documents, and you can use them to back up sales or expense claims.
Can I send an invoice before work is completed?
Yes. While it’s more common to send invoices after the work has been completed, they can be issued before work begins for advance payments, provided this is clearly noted in the terms. For instance, if you’re working on a project that requires upfront payment, you can send an invoice before kicking off work.
How do online invoices work?
Online invoices are created digitally and sent to customers by email or text, often with a built-in payment link. Customers can review the invoice online and, depending on the invoicing platform, pay using their preferred payment method through a secure payment link. The business tracks invoice status and payments in real-time.
What happens if a client doesn’t pay?
If a client doesn’t pay, you should send them a reminder that prompts them to make a payment. If they still don’t pay after multiple reminders, you can send the invoice to a collection agency, which can collect on your behalf with a fee.
