A sales invoice is a document sent by a provider of a product or service to the purchaser that shows the items or services provided and the amount owed. The invoice establishes an obligation on the part of the purchaser to pay. Invoices are an important part of your business's bookkeeping and accounting recordkeeping system because they record sales transactions.
Learn more about what's included in an invoice, how they work, and how to invoice a customer.
What Is a Sales Invoice?
A sales invoice is a document sent to a purchaser by a product or service provider. It establishes an obligation on the part of the purchaser to pay and serves as proof of the debt. Invoices are essential for many businesses, but it's virtually mandatory for any company dealing with a supply chain or offering services without payment needed upfront.
How a Sales Invoice Works
After delivering a product or service, a company will create an invoice containing all details of the transaction and payment expectations. To begin, it's important to note the date the invoice was created because it ensures both parties know when the payment is due. Even if a company doesn't have terms (a time limit for payment), proper dating is important for bookkeeping.
Also included on the invoice should be the contact names of the two parties and their addresses. If you're creating the invoice in accounting software, you may only need the email address of the customer, but it's still a good idea to collect and include the physical address in case you need to send a real letter or document.
A description of items purchased, either products or services, including prices and quantities, will be included on the invoice. Often you will have standard item descriptions and inventory numbers, but the more specific and detailed as possible, the better. It's important to never leave room for confusion.
To invoice a customer, start by including previous document numbers related to this sale, including any purchase order or sales agreement or estimate. Identify the items sold and delivered, making sure each one gets its own line. To ensure proper payment, make sure any deposits or discounts are applied to the invoice and clear stated terms of sale.
The terms of payment might specify "net 30 days," which means that the entire amount is due within 30 days. Net 60 days would mean due in 60 days, and so forth.
Sales Invoices vs. Purchase Orders
Invoices are sometimes confused with purchase orders. The fundamental difference is that purchase orders come before the transaction, and invoices are after. Purchase orders record an order by a customer to a vendor or supplier, while an invoice records the receipt of the product or service and payment terms. Many companies use purchase orders as part of an approval process.
Some companies require purchase orders for products or services over a specific amount.
Sales Invoices vs. Bills
Although often used interchangeably, the difference between an invoice and a bill is the specific information that an invoice contains. Invoices are legal documents commonly used for accounting and tax purposes. They are very descriptive and include information about both parties involved in the transaction, while bills generally don't contain any customer information and are more generic.
It's common to receive a bill without an invoice, as in a restaurant or retail store, and it's often given with the expectation of immediate payment instead of terms set in the future. Invoices are a specific type of bill, but not all bills are invoices.
- An invoice is a document sent by a provider of a product or service to the purchaser that show the item or service provided and amount owed.
- Sales invoices are delivered after the product or service has been delivered.
- The terms of payment include the amount owed and when payment is due.
- A sales invoice differs from a bill because it's sent after delivery of a product or service, not before.