Owning your own business is great—but only if you’re getting paid on time. It seems timely payments is an issue all across the world.
In 2016, American small businesses were owed $825 billion in unpaid invoices. And in 2015, Aussie businesses were owed an astonishing $26 billion.
That comes out to about $13,200 owed to each business. This leaves many taking out loans just to cover the unpaid bills.
Even 25.2% of businesses in the UK are struggling due to late payments. Another 33.8% are currently owed between £20,000 and £40,000.
A part of getting paid on time is having a system in place that’ll make it easier for you to track and monitor your invoices. And a part of this system is using invoice numbers.
In this article, we’ll explore what an invoice number is and how you can use it to better manage your invoices.
The Importance of an Invoice Number
Creating professional invoices helps to make your business look legit. But there’s more to an invoice than just adding your business details, client details, and the total for the products or services rendered.
Without a systematic way of handling the invoice numbers, then managing invoices will become unnecessarily difficult. For example, tracking down an invoice from several months ago will be nearly impossible to do.
This will quickly turn into a time-consuming task that can cost your business thousands. And this is especially true if the invoice you’re trying to track down was never paid for.
This is where you can run into problems with cash flow.
Then you’ll need a way to seamlessly pull up all of the invoices for the year when it comes time to do your taxes. So with all of that said, let’s get into how you can develop a proper invoice numbering system.
Assigning Invoice Numbers
If you’ve ever received a bill, at the very top, you will find a unique number that’s been assigned to that particular invoice. This is sometimes made up of numbers or a combination of numbers and letters.
Whatever you use, it’s important to have a systemic way of assigning numbers to each invoice. Ideally, there should be a sequential method to it all.
For example, if your first invoice is A000100, then the next invoice should be A000101.
Now, what you don’t want to do is start your invoices off at ‘1’. And this is for several reasons.
For one, it makes your business look like it hasn’t had that many clients. While this may be true (if you’re a new business) you don’t want to make clients question your expertise and reputability.
If you’re going to use numbers, then consider starting with 00001. Other options include:
- Create invoice numbers in chronological order with dates (i.e. 120719, 120819)
- Begin invoice numbers with the year (i.e. 190001, 190002)
- Use the customer’s name (i.e. LastFirst0001, LastFirst0002)
- Assign numbers by the project (i.e. PROJ040-001)
Now, going by date is a great choice if you need to quickly cross-reference an invoice with a project. This is easy to do since you’ll know the date of the project’s completion and can search by date in your invoice system.
However, if you decide to create invoice numbers starting with the year (19001), then this will make it easy to see what year an invoice is from.
Each year, the invoice number resets (i.e. 190001). This helps to ensure your invoice numbers don’t get too long.
Invoice numbers that contain the customer’s name is a good idea if you have a lot of recurring customers.
Assigning Alphanumeric Invoice Numbers
Implementing letters into your invoices should have some type of meaning. For instance, the letters can represent a type of document, project, or service it relates to.
Or you can simply go with “INV” for invoice, followed by numbers – INV0001. Then you can use codes and special characters to make your invoices more organized.
For example, you can use WEB (for website design), CON (for content), or other codes. When combining the codes with numbers, you can use special characters like dashes and slashes.
It may look something like this WEB/191207-0001 (website design, date, and invoice sequence number). By organizing your invoice numbers in this fashion, you can quickly find specific invoices based on their project type and date.
Here’s a look at some of the different ways you can combine numbers and letters together:
There are many ways you can develop invoice numbers – these are just a few ideas to help you come up with a system that makes sense for your business.
What if You Want to Switch Later?
You may start out thinking using the date and invoice number sequence is a great idea. Only to find out that it’s not organized enough.
So you decide you’d rather use the year, project type, and invoice number for future invoices. This is perfectly fine.
But don’t do it immediately. It’s best to wait until the accounting period is over to avoid any confusion. This will also ensure invoice numbers aren’t duplicated or misplaced.
When using dates in your invoice, be sure to update the invoice number accordingly. For instance, if the last invoice of January is the 10th, then it should look something like this WEB-19-01-010.
The first invoice of February should start over at 001, like this – WEB-19-02-001.
Once you decide to change the invoice number series, avoid leaving out numbers or repeating them. So if your last invoice of the accounting period if 054, then the next one should be 055.
For example, it can go from 19/WEB/054 to 2019-055.
What to Do with Canceled Invoices
In the event an invoice is canceled for whatever reasons, it’s important to keep the invoice. It’s never a good idea to delete invoices because doing so will create a gap in your financial records.
Instead, you can create a credit note of the same amount as the invoice to cancel out the transaction. This way, your invoice number sequences are still in proper order with no gaps or duplicates.
Creating Your Business Invoice
There are several ways you can create an invoice for your business. For instance, you can use Microsoft Excel or better yet, online platforms like invoicely.
The latter makes it easier to create and manage all of your invoices.
But whichever you use, be sure to include the following in your business invoice:
- Your business name
- Business logo
- Business address, phone number, and other contact details
- Customer’s name and contact details
- Total owed showing pricing per hour, unit, or project (taxes, fees, and other charges)
- Detailed descriptions for itemized list of products or services provided
- Due date
- The invoice number
Use the tips above for creating invoice numbers. Also, if you use an invoicing tool, this is automatically done for you.
Automating Your Invoices
Not only do online invoicing software create invoice numbers for you – but they’ll also automate the whole invoicing process. This will help avoid duplicates and mistakes in your invoice numbers.
These platforms allow you to generate professional invoices within minutes. Then you can email them to clients to pay online.
It’s good to opt for a platform that allows you to accept multiple forms of payment including Paypal, Mollie, WePay, PayLane, and debit or credit cards. Once you send your invoice, you can easily track its progress.
The dashboard allows you to see how many invoices are unpaid and which invoices were already processed. Then to help with getting paid on time, you can set it up so that regular reminders are sent to your clients.
For instance, you can have the reminders sent every three days until payment’s received. It’s a good idea to send your invoice as soon as you complete the project on your end.
This way, the client has ample time to review the project and submit payment. The reminder system takes work off your shoulders so you can focus on taking care of clients rather than playing bill collector.
Set Up an Invoicing System that Gets You Paid
In 2015, UK small businesses were owed a £67.4 billion in unpaid invoices. And in 2016, British businesses wait an average of 71 days to receive payment compared to 42 days for other businesses.
You don’t want to end up like these businesses – owed and slow to get paid. One way to minimize this issue is to set up an invoicing system that’s consistent and automated.
With tools like invoicely, you can make this happen. Create professional invoices outfitted with automated invoice numbers. And set up reminders to ensure clients never forget to pay you.
So what methods of invoicing are you currently using and what changes do you plan to make in the near future make the process easier?