How to create customer invoices for your start-up

Business invoices are essential to any start-up’s accounting and finance processes.

They record the products and services you provide customers and contain important sales, tax, and accounting information.

An incorrect invoice can harm business relationships, lead to late payments, and may even risk penalties (if, for example, VAT legislation is breached).

With 52% of smaller businesses reporting late payments every quarter, ensuring your invoice contains all the necessary information to help speed up payment is vital.

A good invoice includes clear terms and conditions that allow you to chase up late payments more efficiently.

Creating business invoices can be time-consuming when you’re first starting out.

While it can be tempting to download invoice templates from the internet, it pays to check that they meet UK invoicing guidelines.

So, how do you write business invoices, and how do you know if you’ve included all the correct information so you can get paid more quickly?

What is an invoice?

An invoice is a bill you send to a customer or client that asks for payment in exchange for the goods or services your business has provided.

It should list what is being charged, the cost of each item, and the total sum owed.

An essential part of the bookkeeping process, an invoice is different from a receipt (which proves payment) or a purchase order (which shows the intention to buy something).

For smaller businesses, sending a business invoice is crucial in tracking sales and keeping finances healthy.

You must keep invoices for tax and accounting purposes.

What do I need to include in business invoices?

While an invoice format can differ depending on the goods or services involved, all invoices require the following information.

The word ‘Invoice’

The word ‘Invoice’ should be clearly stated at the top of any document to indicate that it is an invoice.

This can help to prevent confusion for your clients and make it easier for both of you to manage invoicing and payments.

Invoice number

Assign a unique number to each invoice.

This makes tracking and organising invoices easier for bookkeeping purposes.

Issue date

Include the date you sent the invoice to your customer.

You may need to refer to this for future audits or if a problem arises regarding payment.

This information can also help the recipient keep track of your invoices and help them to pay you on time.

Accounting periods typically include income you invoice for during that period, rather than payments received from an invoice during that period.

Supply date

You should also always include the date the goods or services were delivered to your customer.

This is known as the supply date.

Customer name and address

Include your customer’s name and address on your invoice.

This helps to identify the customer, especially if two customers have similar names.

It also ensures that the products and services provided are taxed the correct VAT amount, depending on their location.

Your business contact details

Your invoice should clearly state your business name and address, email address, and phone number.

If you’re a sole trader using a business name, the invoice must also include your name and an address where legal documents can be delivered to you.

Purchase order number

A purchase order (PO) is an official document created by a buyer which details the goods and services they intend to buy from your business.

It will have a PO number – a unique code – at the top of the order so both buyer and seller can keep track of orders.

Including the PO number on your invoice helps you and the customer match the invoice to the corresponding order, streamlining payment and record-keeping. 

Descriptions and price breakdown

Include an itemised list of all the products/services you have provided, including individual descriptions and prices.

This allows your customers to see exactly what they are paying for.

Include the date the deliverables were provided and any VAT owed.

VAT

You must include your VAT number on the invoice if your business is VAT-registered.

Any VAT rates applied to prices must be included and expressed as a percentage, such as 20%.

You should include the price without VAT, the amount of VAT charged, and the total amount with VAT added if you are registered for VAT.

Total cost

This is the total amount the customer owes your business, including VAT, if applicable.

Payment terms

These explain when and how your customers or clients should provide payment to your business.

State when the invoice must be paid in full, along with payment options, such as bank transfer or credit card, and payment details, such as bank codes and account numbers.

You can include payment terms on every business invoice, even if you have previously supplied these.

Types of VAT invoices

There are different types of VAT invoices depending on your business needs:

• a full VAT invoice – this features detailed information, including seller and buyer details, a unique invoice number, the date of issue and date of supply (if it’s different), a description of goods or services, the total amount excluding VAT, the VAT rate, the VAT amount, and the total amount including VAT
• a modified VAT invoice – this is similar to a full invoice and is primarily used in the retail industry. It is issued for sales over £250 and includes the total amount including VAT, and the VAT rate. It contains all the information from a full VAT invoice, plus the VAT-inclusive price
• a simplified VAT invoice – this is for sales under £250 and includes minimal information. It includes the seller’s details, invoice date, a description of items, and the total amount payable, including VAT.

What else should I consider with small business invoices?

Do invoices have to be written in English?

Although it’s not legally required, invoices are typically written in English for UK tax purposes.

However, providing translations of invoices could help international clients understand the details better.

It can also help UK clients for whom English is not their first language.

What currency should I use?

For UK tax records, invoice amounts should be written in Pound Sterling.

You could display a foreign currency amount if you invoice clients in different countries using different currencies.

However, exchange rates should be documented for accurate accounting.

Should invoices be digital or paper?

Invoices can be digital or printed on paper, depending on your business needs.

Digital invoices could be more convenient, as they are easier to create and send to the client, but you would need to ensure they are securely stored and accessed.

Paper invoices could take longer to reach your client in the post – however, this does allow paper-based copies to be stored and used as a backup if your digital system fails.

How do I handle invoice disputes and revisions?

If a client has a query or disputes something on their invoice, try to handle the situation quickly and politely.

This might include issuing a revised invoice or a credit note.

Any changes made should be documented in case they need to be reviewed during a financial audit.

How do I handle recurring invoices?

Creating a recurring invoice template could save you time and effort if you do repeat business with a client for regular products or services.

You could store all recurring invoice templates on your computer and mark them for easy identification and quick access.

Alternatively, you could automate the task using accounting software, ensuring a consistent cash flow that handles itself.

How should I track outstanding payments?

Accounting software can be a valuable, time-saving tool for business bookkeeping.

It can track payments at every stage of the payment cycle and set reminders when a payment becomes overdue.

Alternatively, keep records of all invoices sent and paid, along with their dates of issue and payment, so you can have a quick reference guide to hand when needed.

7 tips for encouraging faster payments

1. Have a clear invoice layout

Poorly designed business invoices could lead to late payments and disputes if the necessary information isn’t easily found.

Having a clear, accessible invoice layout can negate these issues.

You could make essential information, such as the amount due and due date, stand out so it is easily identifiable.

2. Invoice immediately

The earlier you send your business invoice, the sooner you can be paid.

It can be useful to add reminders to your calendar and send an invoice when a job is completed, or goods are supplied.

3. Accept more payment methods

As a small business or start-up, giving customers flexibility when paying your invoice makes sense.
The more options you can provide, the easier and faster the payment process can be.

Besides accepting cash and card payments, you could consider online banking and mobile payment services like PayPal.

4. Offer early payment incentives

By offering incentives, such as a discount or other rewards, for early payment, you could encourage customers to pay sooner than outlined in the invoice’s payment terms.

5. Enforce late payment fees

Late payments can cause cash flow problems for a start-up.

One way to encourage prompt payment is to introduce a late payment fee, which charges the customer an additional amount if the invoice is not paid in full on time.

Businesses have a legal right to charge late payment fees (for business-to-business transactions), but it’s best to notify customers of these before they commit to purchasing from your business.

6. Include digital payment options

You could incorporate QR codes or links on invoices to enable instant digital payments for customers.

This can make the payment process quicker and more convenient for clients, which could lead to more invoices being settled promptly.

7. Set up regular payment reminders

Sending automated payment reminders could keep your business invoice at the forefront of your clients’ minds, reducing the likelihood of delayed payments.

For example, you may wish to send a fortnightly email with a polite reminder of the payment date.

You may also want to send reminders after the payment due dates if an invoice hasn’t yet been settled.

Invoicing software for business invoices

Bookkeeping can be time-consuming and requires regular attention to keep your start-up’s finances organised.

As a smaller business owner, you may not have the time or resources to manage or delegate this task to an employee.

There is software available that can make invoicing more manageable.

Free design tools such as Canva have hundreds of pre-made invoice templates.

Templates are also available in popular office software such as Microsoft Word and Excel.

After checking that your chosen template contains all the necessary invoice information, you can input the correct information where indicated.

Alternatively, you may wish to invest in more comprehensive software, such as Xero or Quickbooks.

When you’re looking for invoicing software for your business, consider:

• how easy it is to use
• how much it costs to set up and use on an ongoing basis
• the automation features and how they work
• what digital storage is offered, and how secure this is
• VAT compliance
• how it aligns with your payment systems for efficient tracking.

Read our tips on bookkeeping success for start-up businesses.