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The Complete Invoicing Guide for Freelancers and SMBs

Invoicing may sound complicated or tedious, but it is fundamental in your business activity, whether you are a freelancer or a small business owner.

If you don’t want to hire a bookkeeper or freelance accountant to handle your invoices, we think this guide covers all you need to know about managing your invoices to do it yourself without much hassle.

This guide is not meant for accountants — it’s for any freelancer or small business owner who wants to use an invoicing tool, develop a good system, and keep track of their financial records.

You don’t need a financial background to read this guide. We’ll explain the terminology and concepts, outline step-by-step processes, and share tips & pitfalls to avoid.

Disclaimer: This article is for informative purposes only. The content is based on our understanding of finance at the time of publication, and while it is frequently updated, it does not provide legal advice regarding tax law. Please seek independent advice if needed.

What an invoice is and isn’t

Simply put, an invoice is a document listing the goods (e.g., products) or services provided (e.g., hours worked) along with payment terms — total sum and due date — agreed upon between two parties.

Invoices are documents . . .

Invoices are not necessary for all types of payment or business. You would not send an invoice if you’ve been paid in full before the start of the project — unless required from the client for . . .

Though there is variation among invoices, the standard format of any invoice includes the following: information about the provider and client, invoice number, invoice dates, an itemized list of services, balance due, and payment form. Here’s an example:

Section #1. “Provider Info”

Information about the provider (be it freelancer or company) includes:

In Paymo, you can order them as you want and even add your Fiscal info for bookkeeping. If you are doing business in Europe and you’re VAT registered, you need to include VAT numbers.

Section #2. “Customer Info”

Information about the client can be as detailed as the provider’s — the bare minimum is the full name, email address, and phone number. Some invoices phrase it as “Bill to Client.”

It doesn’t matter whether the Client is on the right or left side of the invoice. Most businesses opt for the Client on the opposite side of the Provider.

Section #3. Invoice name & number.

Every invoice must be numbered uniquely and logically so that you can organize and track them well. A good rule of thumb is to number them using a combination of letters and numbers. Number them:

The key is to find the system that works for you and be consistent.

In Paymo, you can create your own Invoice Name Format by going to Settings > Company Settings > Project Accounting:

Invoice dates:

Usually, the Date and Delivery Date coincide — if that’s the case, most invoices only indicate the Date.

If the Date and Due Date coincide, e.g., June 1, 2022, the invoice is to be paid immediately, also known as “Due on receipt”.

We’ll discuss payment terms later in this guide.

Section #4. Itemized list

There’s a breakdown of all your services provided along with a detailed description, price per unit, quantity, and price.

Each item is then summed up to a subtotal. If you want to add discounts or taxes, these are added to the subtotal, giving you the total amount due.

It’s best to make it as descriptive and concise as you can — descriptive so that your clients know what they are getting for their money, but concise so that the invoice fits one page.

Section #5. Notes

Notes usually discuss payment due dates (Net 30 is usually the standard), potential late-payment fees, acceptable payment forms (e.g., cash, bank transfer, credit/debit cards, etc.), exchange rates — if you work with multiple currencies — and most importantly, a thank-you note. Politeness goes a long way. 🙂

Common pay-by periods are 7, 14, 30, 45, and 60 days. Although the payment due date is stipulated at the top of the invoice, some businesses restate the Net [dd] in the Notes section, meaning “full amount is due for payment in [dd] days”.

For example, Net 10 means that the invoice must be paid within ten days from the date it was issued.

If you’d like to incentivize your clients to pay you asap, you can offer them a discount on the invoice or credit towards the next invoice.

For instance, “2/10 NET 30” translates as “get 2% off if you pay within 10 days; the payment is due in 30 days” — more on NET and payment terms later in this guide.

The problem with paper invoices? They’re so last century, and it has more cons than benefits:

Modern invoicing ensures and strives toward frictionless payment, making transactions easier by minimizing barriers. Frictionless payment comes in many forms, from digital payment options and gateways, mobile and digital wallets, to auto-renewing subscriptions and one-click payments.

Therefore, modern invoicing must include at least one preferred means of frictionless payment.

What is a digital invoice?

A digital invoice is an invoice that can be generated, viewed, and processed digitally. It is usually a PDF, Word file, or Excel sheet that is understood by a human reader — it has a visual form — and allows some sort of frictionless payment: a link or QR code with payment details, an online payment gateway, etc.

What is an electronic invoice?

An electronic invoice (e-invoice) is an invoice that can be viewed and processed digitally. A human reader does not easily understand it, but its main benefit is that it can be processed by a computer thanks to its data format.

An e-invoice is a data file (XML, EDI, or standard Internet-based web forms) containing financial data — think blockchain — transferred between computers, processed, and booked automatically — needing no manual or human input.

An electronic invoice is NOT . . .

Modern invoicing aims to make fewer human actions (and errors) as time-effective as possible, making payments frictionless.

Digital and electronic invoices are:

Here are some commonly used terms, their meaning, and how they apply to your business . . .

An invoicing tool is a major step up from typing up Word documents and Excel spreadsheets. Nowadays, invoicing comes in many sizes, from a standalone product to a robust module within a project management platform.

There’s really no turning away from modern invoicing — it’s time freelancers, businesses, and enterprises adopted invoicing software to help them process payments and keep track of their financial statements.

What’s great about project management software with invoicing is that besides the much-needed expense management and invoice generation, you have all the tools you need in one place to carry out your work.

Paymo’s Dashboard gives you an overview of your account receivables, billable hours, top clients, unpaid balance, a chart on payment status, and total invoices sent.

In Paymo’s Accounting module, there are four tabs — Invoices, Estimates, Recurring, Expenses. So, let’s set up a step-by-step process:

2. Add a thank-you note. A short “thank you for your business” and “please pay within 30 days” do not go unnoticed.

3. Proofread your invoice. To err is human — take a couple of minutes to review the information on your invoice. First, check the client info, then the total amount, and double-check your banking information. Triple-check if you must. Many invoices remain unpaid due to avoidable errors.

4. Send or share the invoice. Send the invoice via email or permalink — as a PDF file — or share it in-app so that Guest Users can view it and process the payment.

5. Accepting payment. Thanks to digital and electronic invoices, online payments have been the preferred option for most companies. Providers have been paid faster and with more ease. Sure, online payment gateways charge a small processing fee for each transaction. But if you factor in the seamless process and time saved in administration and bookkeeping, the small fee is insignificant.

Once the job is done, send the invoice that same day. Statistics show that if you bill your client the day the services are provided, you are almost 1.5x more likely to get paid.

If you wait until the end of the month, then you’re giving your client another month to pay you — which may disrupt your cash flow. . .

Mishaps can happen. What do you do?

If you’ve sent an incorrect invoice, you must issue a cancellation invoice that has a new invoice number — don’t reuse the old number. However, you will have to include the old number in the cancellation invoice under Notes and a negative invoice amount and date of issue.

Then, send the correct invoice with a new number — in the Notes section, you may add the reference number for clarity.

A void invoice is a canceled invoice that exists as a transaction but does not impact your financial records. By voiding it . . .

Please know that if you’ve delivered the work under agreement, you have completed the services in good faith, and your client was aware of your terms, you are entitled to chase late payments.

What happens when your account receivables or invoices haven’t been paid or become uncollectible? You have a few options:

Make sure you assess the situation right — you don’t want to ruin your business relationship if the error is on your part. Check for the following:

If you did your due diligence and the error is not on your part, go ahead and chase the late payment. You’re entitled to get paid fairly for your work, regardless of whether your client is taking advantage of your work or not.

While there’s always a risk when doing business with a new client, you can . . .

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