When you sell goods or services to other businesses, you usually send the customer an invoice. In some sectors, COD (cash on delivery) and cash payment are also used.
You haven't missed the benefits of invoicing electronically, have you? It means that
- you save time and eliminate the need to print, add postage to, and post the invoices
- you get better control over your invoices
- your customers receive your invoices faster.
What an invoice must contain
The invoice must contain several details, such as the date the invoice was issued, specification (what the invoice covers), price and VAT amount, address of the seller and buyer etcetera. You can read more about the content of the invoice on the page "What should an invoice contain?".
The following information is mandatory for limited companies:
- The municipality in which the company has its registered office.
- The company registration number of the company.
- The name of the company.
Our Invoice Helper calculator helps you estimate how much you can invoice and how much VAT you should add.
Invoice as soon as possible
At the time of delivery, you should create and date the invoice. In most software, you can set the invoice date to something other than the current date. This may be a good idea if you know that the invoice will be sent at a later date. However, the invoice should be sent as soon as possible, as it is better if you have the money in your business account so that you can pay your invoices, for example.
For cash sales, a receipt is usually used instead of an invoice. However, there is nothing to prevent the seller from also issuing an invoice for cash sales. The cash (payment) is then acknowledged directly on the invoice or on a special receipt that refers to the invoice.
Invoices are the supporting documents on which your accounts are based. They must therefore be numbered in chronological order.
Invoicing fees are a way of charging for administrative costs. You can only charge an invoicing fee to a customer if this has been agreed. You should check for yourself whether you have to pay an invoicing fee when you receive an invoice. If you and the supplier have not agreed on an invoicing fee, you should not pay one either.
Many businesses use credit. This means that you send an invoice with a payment term of e.g. 30 days, in which case you give 30 days' credit. The number of credit days is calculated from the date of the invoice until the due date. When you give credit, it means that you are without that capital until the customer pays.
Giving long credit periods can be a competitive tool. As a start-up, you may not have much capital, and the longer the credit you give, the more you may have to use your overdraft facility. This can be an expensive way to win customers, as you often pay interest when you use the overdraft. So first consider whether it is worth giving long credit periods.
As long payment periods can be a major problem for those running a business, business organisations and companies have agreed on a voluntary code of conduct in response to an initiative by the Ministry of Enterprise and Innovation. The code of conduct states that the main rule is that small and medium-sized enterprises should be paid within 30 days.
A term often used in payment terms is “net”. This means that payment should be made in the amount stated on the invoice. Discounts or other deductions may not be made.
If you have agreed a specific payment period (credit period) with the buyer in the contract, the due date is the last day of that period. The first day is the day on which the invoice is issued and you can read this on the invoice as the invoice date.
If you have not agreed on a due date, the buyer must pay when you as the seller require it.
When invoicing another business, you must not give more than 30 days' credit unless you have agreed to this. However, it is possible to give consumers a longer credit period, even without a contract. The number of days is calculated from the invoice date to the due date.
Perhaps the easiest way to clearly show the due date is to print it, e.g. “to be paid no later than 30/03” or “payment must be received by 5 October”.
Please note that you are not always entitled to charge penalty interest from the due date you indicated.
Check the customer's ability to pay
Before selling on credit (invoice) to a new customer, you should check the customer's creditworthiness with a credit report. It may also be advisable to do this periodically for old customers. You can buy information on ability to pay from your bank or from credit report agencies.
If the credit report gives a warning signal, you can
- request payment in cash
- send against COD (cash on delivery)
- request an advance payment before delivery
In many cases, credit is not granted to start-ups and payment is made in cash or by COD. It is only when you are considered creditworthy by the supplier that you can obtain credit. When you are a new entrepreneur, you should also be careful about giving credit.