How to write an invoice: A guide for small business owners & freelancers

Invoices serve as formal requests for payment, providing clear documentation of the goods or services provided and the agreed-upon terms. Correct invoicing not only ensures you get paid on time but also helps maintain accurate records for accounting and tax purposes. Understanding how to write an invoice can improve your cash flow, strengthen client relationships, and protect your business in the event of a financial dispute.

Continue reading to understand the purpose and importance of invoices, including how to create, send, and manage invoices effectively.

What is an invoice?

An invoice is a document issued by a business to a customer, outlining the products or services supplied, the quantities, prices, and the total amount due, including a due date which the buyer needs to pay by. The document acts as a form of receipt for a transaction, and outlines what is required from both the seller and buyer, and plays an essential part in important business processes, such as bookkeeping, tax compliance, and tracking payments. 

What to include in an invoice

To ensure your invoice meets UK legal requirements, and displays the information clearly for a client, it should include the following key elements:

1. Invoice number: A unique reference number to help both you and the customer identify and file a specific invoice.
2. Your business information: Your company name, registered address, and contact details.
3. Customer information: The name of the customer or their business name, address, and contact details.
4. Description of goods or services supplied: A summary of the goods or services that have been provided to the customer, including the quantities.
5. Date of supply: This is the date your goods/services were delivered/provided to your client/customer.
6. Date of issue: The date the invoice is created and sent out.
7. Amount payable: The total amount due for the goods or services.
8. Payment terms: Highlight the length of time your customer/client has to pay the invoice.
9. Payment details: Your details of the different payment methods your business accepts, such as your bank details.
10. Purchase order number: If applicable, include the purchase order number.
11. VAT details: If you are VAT-registered, include your VAT information.

Types of invoices

If you are a sole trader, limited company or VAT-registered, GOV.UK state you must include the below information:

For a sole trader invoice:

Your name and any business name being used

An address where any legal documents can be delivered if you are using a business name

For a limited company invoice:

The full company name as it appears on the certification of incorporation

If you decide to include directors on your invoices, include the names of all directors

For a VAT-registered invoice: 

Your VAT registration number

VAT rate applied, total net and gross amounts

Clear breakdown of VAT for each item or service

How to send an invoice

There are various methods to deliver invoices to your clients:

• Email: Sending an invoice on email is now standard practice to ensure an efficient and trackable process. Attach the invoice as a PDF and include a clear subject line, brief message, contact details, and request a confirmation of receipt if necessary. 
• Post: This is a traditional but less common method, ideal for clients who prefer to receive and store hard copies.
• Invoicing software: Businesses can use accounting software, such as Xero or Sage, to generate and send invoices automatically, with features for tracking invoices and sending payment reminders.

When to send an invoice

The timing of creating and sending your invoice can impact how quickly you get paid. Stripe, a global payment processing platform, suggest that businesses such as consultancies and freelancers should send an invoice after services have been delivered. For delivering goods, invoices can be sent immediately, and for ongoing work, professionals can agree on a regular schedule to send invoices, such as weekly or monthly.

Example of an invoice 

The layout of an invoice is straightforward to produce, provided that it includes the details listed above in what to include in an invoice. However, to see an example of an invoice, you can visit Invoice Simple, where you can also create your own template.

Invoice payment methods

There are multiple payment methods you can offer clients or customers to pay an invoice:

• Bank transfer: Bankers’ Automated Clearing Services (BACS) is a popular payment method which allows a client to pay directly from their bank account to the seller’s bank account. 
• Debit or credit card: Online payments made by debit or credit card are quick and convenient and often offer security features to protect sensitive information.
• Payment platforms: Platforms like PayPal can be an ideal payment method for small businesses and freelancers, for paying smaller payments or handling payments on the go.
• Standing order: Ideal for recurring payments, setting up automatic payments can avoid late payments and maintain a good relationship between the service-provider and client.
• Cheque: This traditional payment method is less common as it involves issuing a physical cheque which is sent by post, resulting in a lack of security.

Invoice payment terms

There are a range of terms and abbreviations that can be included in an invoice. Accounting software provider, Sage, shared the common payment invoice terms, definitions, and examples below:

• Payment in advance (PIA): PIA means you require the invoice to be paid in full before the goods or services are provided.
• Net (N): This term precedes how many days before the payment is due, for example, Net 10, or N10, would mean within 10 days.
• End of month (EOM): This abbreviation means full payment is due within the number of days stated after the month-end the invoice is issued in. E.g., If your invoice were dated 5th April with the terms Net EOM 30, the full payment would be due on 30th May.
• Month following invoice (MFI): MFI means the full amount is payable on the date specified on the month following the invoice date. For example, if the payment terms were 15 MFI, with the invoice dated 20th January, payment would be due 15th February.  
• Stage payment: A payment plan can offer for the payment to be paid in stages. E.g., four-stage payments of 25% each, or two-stage payment of 75% and 25%. 

How to write an invoice FAQs:

Do I need to keep a copy of my invoices?

Yes, as a business owner, you should keep copies of all invoices. This is to ensure you can accurately update and provide supporting evidence for all transactions in your business account.

How long does a business need to keep invoices?

In the UK, all invoices must be retained for at least six years from the end of the financial year they relate to. Additionally, they should be kept longer if the invoice relates to equipment or machinery the business has bought and expects to last more than six years, or if the invoice shows a transaction that covers more than one of the company’s accounting periods. 

HMRC could financially penalise your business if you are audited and are found to violate these rules. Additionally, if invoices are lost, stolen, or accidentally destroyed, this must be reported to HMRC immediately. Replacement documents should then be recreated and replaced as accurately as possible.

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Please note: This article provides guidance for information purposes only. It should not be relied upon wholly when making or taking important business decisions – always seek the services of an appropriately qualified professional. The views expressed by websites referenced to are limited to those of the websites, and do not necessarily reflect the views of Markel Direct. Markel Direct is not affiliated with any of the brands, companies or websites mentioned in this article.