You might often get confused about what invoice to send as there are many, based on due dates, type of industry, compliance requirements, regional dependency, and more.
This blog summarises the invoicing types and their purpose and helps you choose the proper invoice before you send them out.
The following are the types of invoices.
The Invoices Sent for One-time Transactions
You would use these invoicing types in simple transactions between a buyer, seller, or service provider.
A sales invoice is commonly called the “regular” invoice. You can use this as a buyer to request a product or service payment and as a legal transaction record after the payment is complete. The invoice has fields:
- Seller information
- Buyer’s address
- Delivery date
- Payment terms
- Items and their rates
- The total price
- The buyer’s bank details
- Payment links
You can use a proforma invoice as an estimated invoice by the seller and send it to the buyer before providing any goods or services. The invoice has fields:
- Items to be sold
- Quantity and price of items
- Delivery date
- Shipping address
You can screen the proforma invoice before asking the seller to start working on their side of the deliverables.
A consolidated invoice is an invoice that groups all the existing invoices under your name when you are the buyer and compiles them into a single invoice with one total. Consolidated invoices save you a lot of time since you would never have to pay for individual invoices.
An overdue invoice means an invoice passed the due date mentioned when you send an invoice. Typically, a sales invoice becomes an overdue invoice when you, as a buyer, fail to complete your payment within the stipulated date. Whenever this situation arises, you become a defaulter. Your seller can use this invoice for the following:
- Sending reminders on payment
- Sending notifications about late fees
- Take a legal action
- Waive off your overdue invoice
The Invoices Sent for Projects
You will receive a retainer invoice if you are a buyer to collect prepayments for an upcoming task. You have to pay the amount mentioned in the retainer invoice to reserve and access the seller’s business services. Usually, people use retainer invoices when collecting advance payments for capital or logistics or protecting against cancellation.
These partial invoices contain only a portion of the final invoice’s fee for funding the project and covering the operational expenses. You can use the interim invoices for larger, more expensive projects because you can break the total amount into smaller invoices to make it more affordable. The percentage of work completed or milestones achieved throughout the project determines the amount entered.
You might come across the timesheet invoices when your business charges your clients based on their employee’s work timings. Timesheet invoices generally apply for services. You can calculate them by defining each employee’s per-hour charges and multiplying them by the total hours worked on the project.
- The tasks performed
- Charges per hour
- Total worked hours
- Start and end date of the project
- Administrative fees
A final invoice refers to the last invoice you send at the end of your project. It highlights the total amount owed to the product or service provider. You can calculate the total by deducting the retainer and interim invoice amounts from the total amount owed. Like a regular invoice, the final invoice has the following fields:
- Payment terms
- Invoice creation date
- Deductions (retainer and interim invoice totals)
- Invoice total
You can use memos to make corrections to past transactions instead of sales.
A credit memo is an invoice used when the seller owes the buyer money, unlike when the buyer pays the seller. It is a document you would receive as a buyer that acknowledges the owed amount and issues a form of a credit to you from the seller. You can use these issued credits for future purchases from the same seller.
If you are a buyer, you can issue credit notes when:
- You want to cancel an order
- You wish to return a product
- The product or service is not satisfactory
- You have received damaged products
- You wish to get compensated for an invoicing error
- Your seller wants to offer you a discount on your next purchase
You can use a debit memo to issue to clients for making changes to past invoices and increasing the total amount owed by your clients if you are a seller. It differs from a sales invoice because people use a sales invoice when selling a product or service as a debit memo to adjust invoice totals of previously sold products or services.
A mixed invoice is any invoice that combines the items in a credit and debit memo, showing the aggregate as the total.
If you are a buyer, you can use a commercial invoice document as proof of an international transaction between you and your seller for legal purposes and vice versa.
You can primarily use these documents to calculate tariffs, determine taxes, and obtain customs clearance for the shipment in and out of the country.
A recurring invoice is an invoice you can regularly send for products or services offered repeatedly. The frequency of sending these invoices is:
To continue using the product or service, the customer must ensure the payment of these invoices on time.
Invoice Based on Formats
A digital invoice is an invoice you generate using softwares like myBillBook when you buy items. For developing a digital invoice, you will need to input information like:
- Your seller’s details
- items’ names
- total money owed
On receiving these data, the software will create an invoice for them. In addition, you can customise these digital invoices using word processors, spreadsheet tools, downloadable templates, online invoice generators, and dedicated invoicing software.
An e-invoice is an invoice document in a structured format, unlike a digital invoice. You can issue, receive, and process it electronically without manual intervention.
E-invoices are interoperable between different billing systems, so a buyer’s accounting system can read and understand receipts and invoices created by the seller’s invoicing system. Thus e-invoices automate the end-to-end Accounts Receivable and Account Payable processes.
In addition, they also help reduce the scope for tax evasion since you can file taxes using e-invoices directly. You can also automate e-invoice creation using our e-invoicing solution, myBillBook, which would help you create e-invoices in less than 20 seconds.
Before drafting the invoice, consider its aim. Then, choose the appropriate invoice types that will do the task. Or use a specialised solution like myBillBook allows you to perform billing.
I requested a service from a vendor. What is the type of invoice I should be generating?
You must create a sales invoice and share it with your vendor.
Can I have one document with all my invoice details?
Yes. You must create a consolidated invoice. It would include all the invoice details under your name, compile them and display the totals.
I missed repaying my seller but haven't received an overdue invoice. Which invoice should I refer to make my pending payment?
When you miss your payment, your sales invoice becomes an overdue invoice. You might have received payment reminders from your seller, keeping the same invoice as a reference. You can look into the same and make the payment.
What is an interim invoice?
An interim invoice is a partial invoice containing only a portion of the final invoice’s fee for funding the project and covering the operational expenses.
I am a recruitment consultant and help companies hire employees on a contract basis. Since I offer them the payroll, what type of invoice should I submit to the company?
You should probably create timesheet invoices using which you can charge your clients based on the employee's work timings.