Small business owners, if they are engaged in any activity, need to send out invoices on a regular basis. While most tend to use the standard invoice format, there are still others who need to find different invoice types to suit their business.
Some of these non-standard invoices include the proforma invoice, commercial invoice and other types. But figuring out which type of invoice may be the best for your business can be a great hassle.
That’s why today we’ll look at the seven best invoices for your small business and why you should be using them.
7 Important Small Business Invoices You Should Know
1. Proforma invoicing
The proforma invoice may be the most popular type of non-standard invoice for one simple reason. There are two ways that the proforma is generally used.
The first way is as a customs document. This helps the customs agents determine the value of goods that are being shipped internationally.
The second type is by far the more popular. In this version, the proforma invoice behaves as a sort of quote or estimate. It is normally used by suppliers when they have a new customer and they need to show what the price will be before any purchase is actually made.
Because of the second usage, virtually any business can use the proforma invoice.
2. Commercial invoicing
The commercial invoice is most similar to the first form of the proforma invoice. It is used to show the value of goods that are shipped across international borders, and it is used by customs to allow them to determine the value of the goods and apply the right duties and taxes.
A proforma may be used in place of a commercial invoice, although both proforma and commercial at the same time is unnecessary.
The commercial invoice usually contains the country of manufacture, the details of the goods being shipped, and the 6-digit Harmonized System code to identity the goods.
3. Timesheet invoicing
A timesheet invoice is useful for businesses that charge their customers for hourly work. This can best be seen as a combination of a timesheet and an invoice, as the document contains both of their information.
The benefit of the timesheet invoice is that it allows for expedited processing as only one document is required. With fewer documents, there’s less chance of anything being lost or going missing.
The timesheet invoice will usually include all the information of a standard invoice. Additionally, it must note:
- The dates and times the supplier worked each day
- The total amount of hours worked and the hourly rate
- The total amount owed for the invoicing period
4. Credit note
Also known as a credit memo, the credit note is a document sent out when the supplier has made an error in the original invoice or goods/services submitted.
In fact, it can actually be seen as the opposite of an invoice. Instead of the supplier requesting payment from the customer, the supplier is going to submit payment of some kind to the customer due to one of the following reasons:
- The supplier overcharged the customer on the original invoice
- The goods or services did not meet the customer’s standards
- The goods were damaged in transit
- The supplier did not provide the appropriate discount on the original invoice
Whatever the cause may be, the supplier will either provide a cash refund or credit toward the next purchase, either for the full amount or partially.
5. Progress invoicing
Progress invoicing, or progress billing, applies to those businesses that are involved in longer projects, some of which can last for years.
In such work, mainly construction, the project is divided into certain agreed-upon stages, whereupon the customer will assess the quality and submit payment for work already done.
- The progress invoice should include:
- The original contract amount and any agreed-upon changes
- The amount already paid for the project
- The percentage of the project already completed
- The amount currently due
- The total amount remaining for the project
By applying progress invoicing, both sides benefit. The supplier doesn’t have to wait until the end of the project to receive payment, and the customer doesn’t have to provide money upfront without first seeing the work.
The self-billing invoice can be considered more as an invoicing process, rather than a type of invoicing document. In self-billing, the customer actually ends up sending an invoice to himself, rather than the supplier sending the invoice to the customer.
When the customer receives the goods or services, he will then create the invoice and send off two copies. One will go to his own accounts payable department, and the other invoice will go to the supplier, to his accounts receivable.
The purpose of self-billing is to help expedite the process. This way the customer doesn’t have to wait for the supplier to start the invoicing process.
Although it is convenient, there are regulations to self-billing. For example, in the UK both parties have to be registered before they can use this procedure.
The last type of invoice is, for the most part, not an invoice at all.
A statement is actually an informational document sent by the supplier that lists all the customer’s unpaid or partially unpaid invoices. It is not, however, a request for payment, and is only meant to inform the customer of his or her payment obligations.
Another way it is not an invoice is that the statement is sent on a regular basis, for example once a month. Therefore, it is not advisable to pay any money based on a statement, as a previous payment may have been submitted but not yet recorded.
However, there is often confusion between an invoice and a statement. This is partially the fault of credit card companies who send out statements that are actually invoices, and they have to be paid by the specified date for fear of extra fees.
These seven invoice types listed above are only some of the many types of invoices there are. However, they are a good starting point and will help you to determine which invoice types are best for your business.
An improvement in invoices means speedier invoice payments, which will improve business cash flow and in general help your business grow.
Bernard Meyer is the Head of Marketing at InvoiceBerry, the online invoicing software committed to helping small business owners send out invoices quickly and professionally. You can also find him on Twitter and LinkedIn.