Types of Invoices That Small-Scale Business Owners and Freelancers Should Master

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Are you struggling with late payments or invoices that simply get ignored?

You may be getting your invoicing all wrong.

Whether you’re a small business owner or a freelancer, knowledge of different invoice types is crucial. It’s the deciding factor on whether or not you’ll get paid.

So… how do you ensure that your invoices tick all the right boxes? This guide will tell you everything you need to know about the different types of invoices you need to use, and why.

Let’s get started!

What every invoice has in common

First things first.

Types of Invoices That Small-Scale Business Owners and Freelancers Should Master

You need to know that although there are different kinds of invoices, certain features appear in all of them:

  • Your business name and physical address
  • The client’s name and physical address
  • The project’s address if it’s different from the business location
  • An invoice number and date.
  • Information on the payment terms and due date
  • A description of the services rendered or the products delivered
  • The number of products or services (hours worked or similar)
  • The amount due in USD, including sales tax, if applicable

The payment information should appear at the bottom of the invoice and will depend on which types you accept

If you accept credit cards, you’ll need to include the form or link relevant to your processor. For ACH or wire transfers, you’ll need to add your business account and routing numbers.

Other options include links to eWallets, Google pay or a similar service, or a QR code that’s scannable.

Remember that the more convenient payment methods you offer, the greater the chance of your invoice getting settled quickly. 

Types of invoices 

Now that you know what every invoice has in common, we can delve deeper into the different types:

Types of invoices

The Proforma Invoice

Whether you bake cakes, create online content, manage social media accounts, sell tires, or retail secondhand clothes, your clients need to know how much your products and/or services cost. This is where the Proforma Invoice comes in. 

These invoices list the goods and services you offer, along with information on your prices.

They serve as a preliminary estimate of the total cost your potential customer is looking at. Think of it as a quote that estimates how much your client’s purchase will come to. 

However, even though Proforma Invoices are estimates, the information on them is not arbitrary.

It should be as precise as possible, giving your customer an idea of the cost as close to the final figure as possible. These invoices are in place to allow buyers to make informed decisions about purchasing what you provide. 

Although Proforma Invoices generally include customs and import fees, they are not requests for payment. Think of them as a record of the fact that you and your client have agreed on a price for your services. 

Proforma Invoices can take whatever form you require, so you have a lot of freedom when you’re putting one together. Just make sure that the description of what’s being retailed and its price is clearly detailed.

The Collective Invoice

This invoice comes in handy if you have several charges for a single customer. It simplifies the process, allowing you to group goods and services and bill for them all at once.

The Collective Invoice

Even if the line items all fall into different categories, they can appear on the same invoice, saving both you and your client time and money. 

The Commercial Invoice

A Commercial Invoice is important if your business operates internationally. It features extra information over and above what the standard invoice does

Goods and services must get listed and described, their value indicated, and the details necessary to determine taxes and customs added.

While there is no official standard format for a Commercial Invoice, make sure you include:

  • A customs reference number
  • Information on any package marks
  • Information on certifications
  • The net weight
  • The shipping method.

The Credit Invoice

Credit Invoices, sometimes referred to as Credit Notes, are statements detailing credit or refunds to your clientele. Using these is far more accurate than just deleting an invoice from your records.

This is particularly true if you’re using accounting software, since this may not allow you to erase invoices that were issued previously.

Credit Invoices allow the software to use the information outlined thereon to update your client's accounts. It will also alter your Accounts Receivables and ensure your Sales Tax Records are properly adjusted. 

The Debit Invoice

In certain instances, you may need to charge your clients more than the amount you initially agreed on.

Maybe the project required additional hours or there was a mistake regarding tax? Whatever the cause, a Debit Invoice will ensure you get the outstanding money you’re owed

Debit Invoices, sometimes referred to as Debit Memos, are essentially modifications of a previously issued account.

These invoices include a reference number and date, making it easy for your customer to know which invoice you’re adjusting with this debit memo. 

Debit Invoices are vital for proper bookkeeping because they create a written trail. This is essential for auditing and resolving any disputes that may arise. 

The Interim Invoice

If you frequently take on larger projects that span longer periods, it’s important that you know how to create an Interim Invoice.

The Interim Invoice

Let’s say your business, or you as a freelancer, are handling a time-intensive project. You have two choices in terms of how you’ll bill for it:

  • You can send a single Final Invoice when the project is complete. This will detail the lump sum that covers all the work you’ve done.
  • You can send multiple Interim Invoices after each pre-arranged section of work is complete.

Let’s say that you’ve agreed to take on an accounting task for a company and both parties have agreed to continue this project for one year.

Sending interim invoices for an agreed-upon amount each month ensures your client keeps paying you what you’re owed. It also means that you have a constant stream of revenue

The fact that, as a provider, the lower risk is one of the main benefits of Interim Invoicing. When you have a customer that’s paying you on time each month, it’s more likely that you’ll be fully compensated for your work.

If, on the other hand, you’re struggling to get paid each month, you can take whatever steps are necessary to resolve the issue before it escalates. 

Clients also benefit from interim invoicing. It offers them financial flexibility and allows them to make sure that the work you’re doing is what they’re looking for. 

The Recurring Invoice

Recurring Invoices are ideally suited to when you’re charging customers periodically for the same amount, much like the case for Interim Invoices. 

But Recurring Invoices are used for ongoing arrangements with no end date. Interim Invoices usually have an end date that you and your client have previously agreed to. 

You’ll usually have a lot of the same information in your Recurring Invoice as you do on your Interim one. This includes details on the service or product provided, along with the cost of each item

Usually, however, the only details changing are the dates and invoice numbers, as the deliverables remain the same.

Many small business owners and freelancers use a downloadable, customizable free invoice template PDF or they invest in automated software to handle these types of accounts.

Because the information on them doesn’t change, this streamlines the invoicing process and creates consistency. 

The Final Invoice

The Final Invoice is the one you send your clients when a project or order is complete. It lists everything you’ve done on the project along with the grand total, the due date for payment, and any applicable payment terms

This is above and beyond all the other essential elements of an invoice. 

Additionally, if you’ve used Interim or Recurring Invoices during a project, you’ll need to ensure your Final Invoice reflects any payments you’ve already received.

This is usually indicated by an Advanced Payment section, which will then get deducted from what’s owed to you. 

When you send your Final Invoice is up to you. It may get sent immediately after you complete the work to ensure that your customer pays promptly.

You can also send it at regular intervals, on the first of every month, for instance, if your customer makes regular, smaller payments

The Final Invoice constitutes the conclusion of your business with a client. Ensure that you’ve summed everything up, included all the necessary elements, and properly listed all your services.

Double-check it so that you know you’ve left nothing to chance. 

The Past Due Invoice

No matter how many precautions you take or safeguards to prevent it you have in place, sometimes you don’t get paid on time. When this happens, a Past Due Invoice can help resolve the situation quickly and amicably

The bread and butter for all freelancers and small business owners is predictable, steady revenue.

A well-timed Past Due Invoice can mean the difference between getting paid and losing money. This invoice is a friendly reminder to your client that their payment is outstanding and it provides the information they may need to rectify the situation. 

Past Due Invoices can include interest added to the original cost because of the payment being late, or you can add a flat additional fee.

Making sure you get paid on time

Whether you’re working as a freelancer or as part of a small business, you won’t survive for very long if you’re not getting paid timeously. 

Making sure you get paid on time

Invoices function as legally enforceable agreements between two parties. They document services rendered, products provided, and payments owed and received. They also help you track your sales and profits and manage your finances. 

Having a working knowledge of the different types of invoices available and which ones your business needs is a crucial part of your success.

About the author 

Peter Keszegh

Most people write this part in the third person but I won't. You're at the right place if you want to start or grow your online business. When I'm not busy scaling up my own or other people' businesses, you'll find me trying out new things and discovering new places. Connect with me on Facebook, just let me know how I can help.

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