The Definition and Purpose of Sales Invoice

The Definition and Purpose of Sales Invoice

In financial accounting, a sales invoice (or invoice) is a document used by a company to communicate to clients about the sums that are due in exchange for goods and services that have been sold. Invoices help businesses get paid and provide legal protection for both sellers and buyers.

As a service or product provider, you need to prepare a sales invoice whenever you need to request payment from your customer. Usually, invoices are sent twice; before the customer’s request is processed and after the request is fulfilled. However, some sellers prefer to send their invoices either at the beginning or the end of the transaction, depending on the payment policies applied in their companies.

Although invoices can be found on a daily basis, there are still many people who often mistake them for receipts. In this article, we will explain everything you need to know about sales invoices.

Types of Sales Invoices

There are at least four types of invoices that are generally used for transaction purposes.

Standard Invoice

The Definition and Purpose of Sales Invoice
An example of a standard invoice

A standard invoice is the simplest type of invoice. It can be applied in any sale transaction. It should include the reference number, delivery date, due date, seller’s name, contact information, list of products or services transacted, total price, and method of payment.

Pro-forma Invoice

The Definition and Purpose of Sales Invoice
An example of a proforma invoice

A pro-forma invoice is submitted by a seller to a buyer before the goods or services are delivered to the buyer. The purpose of a pro-forma invoice is not to ask for payment right away, but to inform the buyer or the customer about the fee that must be paid after they receive the products or services they ordered.

Recurring Invoice

The Definition and Purpose of Sales Invoice
EQUIP E-Invoicing

Recurring invoices are used by suppliers or merchants to charge customers for goods or services at regular intervals. These invoices are normally submitted on a monthly basis and popularly used by service providers who have regular customers, such as internet service, TV, and telecommunications service providers. With the help of EQUIP E-Invoicing, recurring invoices can be created and scheduled instantly.

Commercial Invoice

The Definition and Purpose of Sales Invoice
A standard template of commercial invoice

Unlike the daily invoices that we usually encounter, commercial invoices are special invoices designed for documentation in international trade, such as shipping machine parts from one country to another. These invoices are used for customs valuation ​​when products cross international borders.

Also read the related article: Understanding Invoicing Software and Its Benefit for Your Company

The Purpose of Sales Invoice

The Definition and Purpose of Sales InvoiceSome functions of a sales invoice include:

  1. As a written evidence related to the quantity and price of goods
  2. As information regarding the value of bills that must be paid by customers
  3. As proof that the taxable goods received by a customer are in accordance with their requests and the customer can use the invoice to file a complaint
  4. As a reference document when the goods or services listed will be sold to other parties
  5. As a tool to track what has been sold, when the transaction has taken place, and how much money is involved
  6. As a valid evidence for tax reporting

The Components of a Successful Invoice

Each type of invoice has its own purpose. But, usually, invoices contain some of the same important components. Make sure your invoices include the following information:

a) Company Information

Company’s legal name, logo and address must be included in the invoice.

b) Customer Information

Customer’s name that matches their identity card must be written completely.

c) Invoice Number

Invoice number has to be included in an invoice to distinguish one transaction from another.

d) Invoice Date

This part shows the date when the invoice is sent, so merchants can record their daily journals based on their sales invoices.

e) Transaction Details

A detailed description of the goods or services listed, consisting of quantities, codes and names of goods or services, as well as unit prices, discounts, and total prices.

f) Total Amount Due

The total amount due includes the subtotal price of each product, the taxes collected, and the total price that the customer must pay.

g) Payment Terms

Last but not least, a sales invoice must also cover the terms and conditions of payment that must be met by customers, including the due date and payment method.

How to Create Invoices Instantly

Sales invoices play an important role in the sustainability of your business. Late-paid invoices can stop your business income and this indicates unhealthy cash flow. Therefore, it’s important for you to ensure that each invoice is paid on time.

To make it easier for you to create and manage your invoices, consider using EQUIP E-Invoicing. With this software, you can make various types of invoices, customize them, and send them automatically. You can also set up reminders to avoid late payments.

EQUIP E-Invoicing can be integrated with an accounting system so that you can also monitor your income and cash flow through one system. Visit our website for complete information about our E-Invoicing software or talk to our software experts.

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