Sure, most of us have heard of an invoice. And more than likely, most of us have received an invoice at one point in time. But in a world of bills, invoices, receipts, and purchase orders, do you really know what an invoice is — and why you, a retailer, need it?
To put it simply, an invoice is a document you send to collect money owed to you for services you’ve provided or items you’ve sold. Essentially, an invoice is a bill that shows a specific order’s supplier, customer, date of service, when payment is due, and what exactly the services were.
An invoice also helps to establish an agreement between the supplier and customer to pay the supplier for the services or goods under the terms specified in the document. And for retailers, you can use invoices for a wide variety of reasons — from billing vendors to online orders.
Still have questions? Here’s everything else you need to know about creating and implementing invoices into your retail business:
What’s the Difference Between Invoices and Purchase Orders?
We know what you’re probably asking now: But if an invoice is essentially a bill, then what is a purchase order? Well, the difference between an invoice and a purchase order lies in when they’re used.
Purchase orders are created when the order is created — or before the actual transaction. These documents record what the order specifically is. Then once the transaction is made, an invoice is created and sent to the customer or vendor to collect payment.
So, how do you know if your retail business also needs purchase orders? Usually, retailers need purchase orders for large product quantities, with a hefty price tag, or for custom requests. This helps to establish an approval process for your business to lay out the circumstances under which you’ll take on a larger-than-normal order or one that requires extra time.
Why Do I Need an Invoice?
The short answer is that you need to keep track of all items or services sold. The long answer? Well, this lies in your business’ bookkeeping. All businesses should strive to keep accurate records of all transactions, and invoices play a vital part in that monitoring when, where, what, and to whom you sold an item or service.
Invoices also help ensure you receive payment. Depending on the language you use in the documents, invoices can help you obtain the money vendors, suppliers, and customers owe you in a timely fashion.
The bottom line is that invoices not only help you keep accurate records, but also ensure revenue remains steady and you don’t experience cash flow issues.
What Do I Include in an Invoice?
While invoice templates are a dime a dozen, it’s important to note that there’s not a one-size-fits-all solution for every business. So, always keep your bookkeeping needs and type of business in mind before landing on the format that works best for you.
Here’s what you should consider including in your business’ invoice template:
Invoice Terminology
This one’s easy: Ensure you’re including the word “invoice” at the top of the document. Being clear about what the document is will help your customer understand the purpose of the document — and help distinguish the invoice from a purchase order if those are a part of your business’ records.
Invoice Number
For record-keeping purposes, you’ll want to give each invoice a unique number based on the customer and good bookkeeping practices. To do this, create a naming convention that will help you distinguish one customer from another and one invoice from another for the same customer.
One method is to use a group of letters that represent a specific customer. For example: If Shopify is a customer, you could use SHP, SHFY, or SPFY to help distinguish Shopify’s invoices from another customer’s. Then include a numerical value at the end to help create a chronological order of the invoices — this also helps to promote good organization practices for your business’ bookkeeping.
Here’s an example of what that may look like:
- SPFY-0001
- SPFY-0002
- SPFY-0003
Again, there’s not a one-size-fits-all for what your naming convention should be. Above all else, you should land on something that makes sense for your business and record-keeping needs.
Customer Information
The type of customer information you include in your invoice can vary based on what your business needs to know about them. However, it’s best to have the following to ensure you don’t have to rely on one method of contact:
- Business name
- Contact at business (this is usually in an “Attn:” line)
- Mailing address
- Billing address, if different than mailing address
- Email address
- Phone number
Generally, customer information is included at the top of the invoice.
Supplier Information
Always include your business’ information on your invoice, using the same format as the customer information, and ensure it’s accurate. But, keep one thing in mind: If your billing information is different than your standard information, include your billing information since your customer will need it to make their payment.
Including this information can also help your customer keep the correct information on file.
Date of Invoice
Including the date of when the invoice was created is vital because it informs your customer of how long they have between the invoice’s creation date and the due date.
This also helps you to know when you need to follow-up on payment, especially in the case of past-due invoices.
Terms of Payment
Instead of expecting your customer to pay their invoice upon receipt, include payment terms in the invoice so you’re explicitly stating exactly when payment is due.
The most common payment terms are “net 30 days,” which is 30 days from the invoice date. However, you don’t have to settle for 30 — this period can be based upon your business’ needs.
Here are the most common payment terms to consider:
- Net 7
- Net 10
- Net 30
- Net 60
- Net 90
Always remember: This is the number of days after the invoice date, and in many cases, the customer will wait until this date to make their payment.
Payment Details
This isn’t a mandatory item to include in your invoice, but it could be a great addition — especially if you’ve already experienced late payments or frequently asked questions about accepted methods of payment.
Here, you can include accepted payment types — like checks, PayPal, bank transfers, major credit cards, or cash. And you can even state what you charge if the payment is late. For example, this could be a percentage that’s tacked onto the total amount due that increases over time (i.e. the later the payment, the higher the late fee).
PRO TIP: To encourage early payments, include a discount on the total amount due if you receive payment within a certain period. For example, if your payment terms are net 30 days, you could offer a discount if you receive payment within 10 days.
Description of Goods or Services
The description of the goods or services purchased is the most important part of the invoice, and it’s important that it should be split into at least four separate columns: quantity, description, unit price, and line total.
- Quantity: This is where you highlight how many goods or services were purchased by a customer of a single product or service type. If a customer bought five blue t-shirts, for example, you’ll want to put “5” here. Or if you charge by hour, put the number of hours worked.
- Description: Be as descriptive as possible here, for each item in the invoice, to clearly state what the purchased item is. You can also go in depth on the labor or additional requests from the customer, if applicable. This may include the product’s SKU number as well as a physical description of the item.
- Unit price: This is where you put the price of a single product or service. Using the same example as above, you’ll want to enter the price of a single blue t-shirt. Or if you’re charging hourly, include your rate for one hour.
- Line total: For this section, multiply the unit price by the quantity to get the final cost for a specific product or service purchased.
Don’t forget: Each item or service purchased in one order gets its own line on your invoice.
Shipping Terms
Do you ship goods to your customers? If so, include your shipping terms in the invoice.
To start, clearly state who’s responsible for the shipping costs — you or the customer. If it’s the customer, ensure the shipping costs get a line item under the description of services provided so it’s included in the total amount due.
Also, consider including information on the method of shipping and the expected delivery date.
Sales Tax
Whether you should charge for sales tax is dependent upon your state and the type of goods or services you provide through your retail business. If you determine you should charge for sales tax, always include a section for this underneath the subtotal (sum of all line totals).
To determine the sales tax for a single invoice, take your state’s sales tax percentage and multiply the subtotal by the sales tax rate.
Broken down, that formula looks like this:
Item Cost X Sales Tax Rate = Total Sales Tax
then
Total Sales Tax + Sale Subtotal = Sale Total
For example:
$100 X .07 (or a 7% sales tax) = $7
then
$100 + $7 = $107
Have an online store? Find out here if you should be charging sales tax for your merchandise.
Total Amount Due
This number should stand out from the rest of the information included in your invoice, as it’s the ultimate reason for providing an invoice to your customer.
To get the total amount due, add up all line totals together — and include sales tax, if applicable.
How Do I Invoice a Customer?
So, how do you actually do it? Well, you have a variety of options — and all depend on your type of retail business and specific needs.
If you’re a retailer that’s just starting out and doesn’t have a demanding number of orders, consider using an online invoice template. A quick Google search can yield a thousand examples, and there are also online resources like Shopify’s free invoice generator that makes creating invoices quick and easy.
If you’re comfortable doing the filing yourself, you can also use pre-printed invoices if that meets your business’ needs better. Or, you can look to online bookkeeping tools like Cashboard or Wave that will do the work for you so you can focus on fulfilling orders and keeping your revenue flowing.
Have any invoice tips, tricks, or stories? Share them with us in the comments below.
