The Crucial Core Features of a Digital Invoice
A lot of entrepreneurs and businesses might think they’ve gone digital with their invoicing, but they’d be wrong and could be missing the core features of a digital invoice. A PDF invoice sent via email isn’t true digital invoicing.
To get your company completely on the bandwagon, you need to utilize an invoicing system that completely encompasses the entire process from start to finish. This will improve your efficiency, streamline operations, and help boost your business.
There is a wide variety of invoicing programs that you can use—from full accounting packages to web-based software designed for individuals and small, individually owned and run businesses. The finished result is a structured invoice that cannot be tampered with by anyone receiving it. The most commonly used formats are EDI and XML.
Image Credit: Razer Merchants
How To Put Together A Digital Invoice
A major perk of most digital invoicing systems is that the software comes with templates for you to build from. These will help you create professional invoices that cover all the pertinent details in a way that’s easy to read, and clear to follow.
It’s important to find a template that has the space required for all the information you need to include in your invoices. Each business is unique and will have slightly different needs as to what it’ll include. However, all invoices should include the following:
- Company Details
You should spell out both your own company details and those of the invoice recipient. The usual layout shows your company name and logo at the top of the invoice. You can include your physical and billing address, email address, telephone number, your company’s website URL, and VAT number, either at the top or at the bottom of the invoice. This information needs to be clear and easy to find on the document. Avoid using fancy fonts and stick to the easy-to-read options.
Whether you’re invoicing an individual or a company, their contact details need to be on the invoice too. You should always include the name of the person responsible for receiving the invoice, or at the very least their position in the company if you’re invoicing another business.
A top tip is to always ask the other business if there are any specific details they require to be included on their invoices. Payment is so often held up if the company’s name isn’t correct, or the VAT number hasn’t been put in the correct place.
- Unique Signifiers
An invoice number is an essential component of accounting information. If each invoice you send out doesn’t have a unique number, it’s virtually impossible to keep track of payments and what’s still owed to you. The best way to do this is to start from 01 and keep going in numerical order—each new invoice gets the next number in the sequence. Make sure you only have one numerical sequence for all of your invoices and don’t try to make a new one for each client you send to.
Other unique signifiers typically included in an invoice are the date it was created and sent, as well as a Purchase Order (PO) number if your business or the invoice recipient uses them. The date on the invoice will help you track when the payment is due, or if it has become overdue.
- Descriptions and Amounts
Whether you’re selling products or providing a service, you must include a description of what the invoice is for. The entire middle section of an invoice is usually dedicated to this. You can include the name of the service or product, unique identifier codes if you use them, the quantity of what you provided (hours or number of goods), the unit price, and the total for each item.
Each item you add to your invoice is usually called a line item. The overall value of the invoice is made up of these line items—here you can be as specific as you need and want to be on how you reached that overall figure. It’s important to find a balance between covering your needs in terms of stock or services provided, as well as not entering unnecessary information that might confuse the invoice recipient.
If your business is a service that you provide, you don’t have to have a specific price connected to each line item. You may prefer to provide packages that come at a certain rate. If this is the case, list what the package entails so that the client knows what they are paying for.
More than likely, you’ll need to add a section for tax, and this is usually at the bottom, between the subtotal and final total. If items are already taxed, this can be noted, or the section omitted.
- Payment Information
Of course, the entire purpose of an invoice is to get paid. If you don’t include information on how to pay you, and what the payment terms are, you won’t get your money! Make sure you have a clear section with the title Payment Details and list the details for how you’d prefer to receive payment.
If you are happy with a client making direct deposits or Electronic Funds Transfers (EFTs) into your bank account, you must include all the relevant banking details for those transactions. International customers will need a SWIFT/IBAN/BIC number to complete the payment.
If you wish to accept other methods of payment, including cash or checks, you can state in this section what you will allow, and what you won’t. It’s best to give options to your clients, but only what you are comfortable with. Some banking mechanisms have higher fees, and this can be to your disadvantage if you include them as an option.
The next section in your invoice should be Payment Terms. These are the terms and conditions for the invoice and are legally binding. They include how long the client has to pay the invoice before it becomes overdue, if you offer any co-payment schedules, or if you give a discount for early settlement or interest as the invoice goes from 30 days to 60 days, and to 90 days.
The Benefits Of Switching To Digital Invoicing
The most important aspect that you’ll find with having a proper digital invoicing system is that your business looks more professional. Clients and suppliers will take you far more seriously when you present them with financial paperwork that hasn’t come from a simple spreadsheet or Word document.
In addition to having a more polished look for your business, you’ll find that digital invoicing can benefit your company in a big way. For example:
- You Save Time and Money
A digital invoicing system takes a lot of the hassle out of creating invoices, tracking payments, and providing a current snapshot of your overall income. Once the system is set up, you can generally create invoices quickly and easily through the software, and send them directly to your clients.
Bonus features in your software can include getting alerts when a payment hasn’t been made on time, or automatically sending reminders to clients to make payment. If you have regular invoices that go off on the same day each month, you can set those up to auto-create and send.
If you aren’t spending as much time on creating invoices and following up on payments, you can focus on the other operational aspects that you outlined in your business plan. This means you aren’t only saving time, you’re saving money—because your time is valuable.
- You Can Limit Human Error
Manually creating invoices and tracking them leaves the door wide open for human error. It can be anything from mislabeling the invoice, to transposing numbers in the unit price column.
Minor mistakes like this can cause big problems down the line. Clients can under or overpay because of these errors. You can also lose invoices entirely if your system isn’t clear, or you’ve labeled them incorrectly.
- Tracking Invoices and Payments is Easier
Human error doesn’t just relate to getting the information in the actual invoice correct. You can make a mistake on your overall list of invoices—forgetting to add something, or missing the fact that a payment has or hasn’t come through on time. When your system isn’t automated, it’s up to you to allocate payments manually to the correct invoice, and continuously double-check that you haven’t missed something. This can make managing your cash flow complicated and time-consuming.
In an automated system, the figures paid will be connected to the invoice as the amounts come in. If something doesn’t match up, a red flag will be raised and you’ll be notified immediately. You can then stay on top of late or incorrect payments, rather than spending time trying to work out what’s happened.
- Reduce Your Paper Consumption
In the 2020s, it’s important to be environmentally conscious in the way you do business. An automated system will cut down on your paper use dramatically, as everything will be done digitally—no more printing out invoices or writing them out in triplicate books. As an added perk, you’ll save money, as you won’t need to buy paper or envelopes for posting.
The world has gone digital and if your invoicing hasn’t, now is the time to address that. Regardless of the size of your company, setting up a proper digital invoicing is the way forward, and it will benefit your business in so many ways.