While traditional employees eagerly await their paychecks, freelancers and small business owners rely on something much different for their income: the humble invoice. But there’s not just one type of invoice used in the business world, and knowing which types of invoices to use can be crucial to getting paid.
In the modern age, services like invoicely make creating, sending, and filing away invoices a breeze. However, knowing the correct what, when, and how of sending an invoice is ultimately up to you.
Fortunately, learning the different types of invoices you can send to your clients (and when it’s right to use each) is incredibly simple.
8 Types of Invoices and When to Use Them
Depending on your industry, there can be countless different types of invoices passed back and forth. If you don’t know what you’re looking for, you can quickly become overwhelmed with all of your options.
For example, businesses shipping goods over national borders typically have to issue a commercial invoice. This document includes information about the shipped goods and their monetary value.
But someone like, say, a freelance photographer probably won’t have any need for a commercial invoice during their day-to-day business.
So, to help you get started with understanding the many different types of invoices you can use, here are eight invoices freelancers, entrepreneurs, and small business owners will probably encounter during their careers:
1. Proforma invoice
Whether you deal in goods or services, most clients want to know the final cost of your work. In these situations, a proforma invoice can be a useful tool.
A proforma invoice is a document listing the services and/or goods being provided and the pricing for each. This invoice is sent before any work is done on the project.
Proforma invoices aren’t a request for payment, but rather a notice of the payment that will be due. In many ways, this type of invoice is like an estimate. Instead of giving a rough estimate of the final price, though, a proforma invoice is fairly exact (though can be subject to change).
Your client might request a proforma invoice is they need to get financial approval from multiple people to move forward with the project.
2. Interim invoice
When you take on a large, time-consuming project from a client, how do you handle your invoicing? Do you wait until the very end to invoice them for one lump sum? Or do you send out intermittent invoices as you hit key milestones of the project?
If you prefer the latter, then you’re already pretty familiar with interim invoices.
You can set up interim invoices to follow a regular schedule, or send them out when you complete specific pieces of a larger project. These invoices are used to break up a large project into smaller payments, which can benefit both you and your client.
3. Recurring invoice
At first glance, interim and recurring invoices might seem pretty similar. However, there are some key differences between these two types of invoices.
While an interim invoice allows you to break up payments for a large project with a definitive end, recurring invoices may be scheduled indefinitely.
For example, if you manage social media and online marketing for your clients, you might offer year-long contracts. Rather than send a giant invoice at the end of each year, you can set up recurring invoices to be sent out monthly or quarterly.
Need to send recurring invoices? Give invoicely a try!
4. Final invoice
As the name implies, a final invoice is your last invoice to a client. This invoice includes everything you’ve done for the client and the outstanding balance that is due.
Final invoices might also include a summary of past payments made toward the project, but not always.
5. Collective invoice
Sometimes, you’ll find yourself doing small bits of work for a customer over an extended period of time. Yes, you could invoice them for every little project or sale. Or, you could consolidate everything with a collective invoice.
Collective invoices are just like “normal” invoices, but they group together several small services or goods.
For instance, if you supply goods to customers on a regular basis, you might invoice a month’s worth of purchases at once.
Or, if you perform intermittent I.T. services for a company, you might wait to invoice them at the end of the month rather than sending over several invoices for one or two billable hours.
Using collective invoices can mean fewer transaction fees for both you and your client. It can also make bookkeeping easier since you won’t need to keep track of dozens of small payments.
6. Credit memo
Technically, a memo (or memorandum) is an amendment to an invoice already sent. A credit memo is issued by you to your client to decrease the amount owed on an existing invoice.
Credit memos are often used when a business or individual can’t follow through on delivering goods or services that were promised in the outstanding invoice. Other reasons for issuing a credit memo can include a pricing dispute or return of purchased goods.
7. Debit memo
On the other side, we have the debit memo. It can be quite easy to mix these two terms up, and they are very similar.
While you use a credit memo to issue an adjustment to your client’s invoice, your client can submit a debit memo to let you know that you’ve underbilled them.
Otherwise, these invoice amendments work much the same.
The whole purpose of these memos, whether credit or debit, is to track invoice adjustments for both you and your clients’ bookkeeping. These memos can also serve as proof of the adjustments for your taxes or if another dispute ever comes up in the future.
8. Account statement
An account statement is also not technically an invoice but is very closely related. Account statements offer a summary of the services and/or goods purchased, payments made, and any outstanding balances that are still due.
Much like a bank account statement, account statements offer a summary of all business done between you and a client. However, they can also be a valuable tool.
Sending off an account statement can be a gentle way to remind clients of an unpaid invoice. Clients might also request an account statement for their own records, so it’s a good idea to have them at the ready.
What Every Invoice Should Include (No Matter the Type)
Now that you understand the intricacies of the many types of invoices out in the business world, it’s time to start crafting the perfect invoice for your business!
No matter what type of industry you work within or which type of invoice you’re sending, make sure each of these items is included in your invoice:
Remember when every school teacher made you date your homework assignments? Well, there was a good reason.
While it might seem silly to date an invoice in the moment, that information will become invaluable in a few months’ time.
Instead of trying to decipher exactly when and where a stray invoice came from, you’ll be able to file it away precisely where it belongs.
Your invoice should include information for yourself/your business, as well as the contact information for your client.
When adding this information, be sure to spell all client names correctly and use the correct titles if appropriate. Misspelling someone’s name or calling them by the wrong name entirely is a quick way to sour your business relationship.
Description of goods/services
Of course, you and your client know the goods or services covered by a given invoice. However, you still want all of this information, including any pertinent details, written on paper.
When drafting an invoice for a client, keep in mind all of the other sets of eyes that might be looking at this document. While your client might be 100 percent in the know about your transaction, their bookkeeper or accountant might not be.
When it comes to getting paid on time, the last thing you want is to leave your payment terms ambiguous or entirely unknown. In fact, your payment terms should be one of the most prominent items on your invoice.
Keep in mind that some clients might not know standard invoicing terms like “net 30.” It’s always a good idea to include the payment terms as well as a concrete due date on all of your invoices.
Thank you note
Finally, take a moment to thank your client for their business and the professional relationship you’ve shared. While invoices are ultimately a tool for getting paid, they also offer one last opportunity to show your client a little bit of appreciation.
Creating the perfect invoice might seem like a chore, especially if your plate is already piled high with project-related duties. Fortunately, invoicing has never been as easy as it is today.
With tools like invoicely, freelancers and small business owners can streamline their invoicing process from start to finish. Not only can you create professional invoices that include everything listed above, but you can also let your clients settle their invoices with a built-in payment portal.
Learn more about how invoicely can change the way you handle all different types of invoices.