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Frequently Asked Questions

What is an invoice?

An invoice is a commercial document issued by a seller to a buyer, relating to a transaction and indicating the goods, services, quantities, and agreed payment terms for the goods or services being provided to the buyer. It is typically used when something is purchased and the payment is due at a later date, but this may not always be the case.

Why are invoices important?

A seller uses an invoice in order to keep track of the sale of goods or services. Sellers typically do this for organization and accounting purposes. There are many companies that will ship items or provide services and then require payment at a later date, and the invoice system can allow them to keep track of what has been paid and what has not been paid. If the amount due on the invoice is not paid as soon as it is ordered or delivered, it becomes an account payable for the buyer and an account receivable for the seller. It is best practice for the accounting department to keep track of when these accounts become due so that they can know exactly what is outstanding at any time as well as process payments for the right accounts as they come in.

Is an invoice legally binding?

On its own, an invoice is not a legally binding agreement. However, a legally binding agreement related to the invoice can occur when the essential elements of a contract are met. To form a binding contract, there must be an offer from a seller that is accepted by a buyer based on an exchange of value (sometimes called consideration) and a mutual intention to form an agreement. If any of these components are missing, then no legally binding contract has been formed.

Note, also, that a seller and buyer can create an oral contract where they verbally agree to complete an exchange of goods or services. In such instances, invoices are sometimes sent to request payment on the oral contract already formed between the parties. Although an oral contract is legally binding, it is difficult to prove the existence of one should a party—usually the buyer—dispute it.

What does an invoice include?

Generally, all invoices should include the following information:

  • Invoice date – This is the date that the invoice is created by the seller and is not to be confused with the payment due date.

  • Description of goods or services – This outlines exactly what was purchased as well as the quantity of goods or services provided by the seller. 

  • Names and addresses of the buyer and seller – This includes the buyer's and seller’s locations and the delivery address for the goods or services if it is different than the buyer's location. 

  • Payment amount due – This includes all of the fees that are associated with the order (delivery, taxes, etc.) and the prices of the goods or services based on their quantities. 

  • Payment due date – This is the date that the seller is requesting payment by. If the parties have already come to a contractual agreement related to the transaction, then payment by this date is mandatory.

The buyer and seller may also choose to add additional details to the invoice as needed.

Do invoices need to be on paper in order to be valid?

An invoice does not have to be provided to the buyer on a physical piece of paper in order to be actionable by the seller. Today, there are many systems that allow for the creation of electronic invoices that can be delivered via email or other electronic systems to the buyer. The electronic delivery and storage of invoices prevents customers from losing them and allows buyers to easily produce additional copies at any time.

What is the difference between invoice date, ship date, delivery date, and purchase order date?

The invoice date is the date that the invoice is generated by the seller. This date is typically placed on the invoice when it is created and is not the date that the payment is due. The ship date is the date that the goods begin shipment to the buyer according to the purchase order. The delivery date is the date that the goods arrive at the designated place for delivery to the buyer. The delivery date and location is normally determined by the buyer. The purchase order date is the date that the purchase order is generated by the buyer, but it can also mean the date that the seller receives the purchase order.

Which location is used to determine the sales tax rate? Is it where the transaction occurred, the seller’s office, or the buyer’s address?

Generally, the seller’s state sales tax rate will apply. The seller collects sales tax based on where the transaction takes place. Therefore, it does not matter where a buyer is located in terms of calculating sales tax. 

However, when it comes to online transactions, the sales tax depends on whether the seller is located in an origin-based sales tax state or a destination-based sales tax state. In origin-based states, sales tax is collected based on where the seller is located. In destination-based states, the sales tax rate is based on where the buyer is located, which is also known as the destination of the sale. As a seller, you will need to determine where the law stands in your state in order to determine how taxes should be calculated. It is also recommended that you check on any changes in the law regularly in order to ensure that you are calculating tax according to the legal requirements.

Is a signature required on an invoice?

A signature is not necessary on an invoice. However, the parties may choose to add language to the invoice outlining part or all of their agreement and then sign it, at which point it becomes a legally binding document.

What is a 'due upon receipt' invoice?

With invoices that are due upon receipt, the seller expects payment as soon as possible after the buyer receives the invoice. The invoice may arrive with the delivery of the goods or services. Alternatively, it may arrive after the goods and services are delivered. This is decided by the seller and based on when it requires payment. This should also be part of the initial agreement between the buyer and the seller..

What are the common types of invoices?

A standard invoice is a basic invoice that may be used for many different kinds of business transactions. It is the most common type of invoice used in business.

A commercial invoice, when used in specific industries, is usually more detailed than standard invoices and often contain items unique to the industry. For instance, they may be used in foreign trade for customs declarations and to calculate tariffs.

Professionals use timesheets when their services are provided, evaluated, and charged based on the amount of time that the services are provided. A timesheet may be used by independent contractors or non-salaried employees in order to track their hours and ensure accurate pay.

Recurring invoices are invoices that typically have fixed payment rates and are delivered at regular intervals or benchmarks. They are commonly used in industries that provide rental, lease, or subscription services. For example, software, marketing, design, and consulting services often use recurring billing.

A pro forma invoice is a document that states a seller’s commitment to deliver the products or services upon the terms as offered to the buyer. This type of invoice is basically an estimate or a quote that may be subject to change. Like all invoices, a pro forma invoice is not a legally binding document, and therefore the seller will be free to make changes until the parties arrive at a contractual agreement.

A progressive invoice is commonly used in transactions that take place over a long period of time in order. The buyer receives an updated copy as additional work and costs are incurred. Construction contractors and other contractors regularly send progressive invoices to keep customers updated on the projects. Depending on the arrangement, the parties may agree that the buyer has to first sign off on any additional or non-standard costs before the seller provides such items.

Can you reject an invoice?

Yes, invoices can be rejected by the buyer. Invoices are commonly rejected if they are received by the wrong person or entity, if it has already been paid, or if the goods or services are not received. An invoice cannot be rejected if the goods or services were delivered to the right person without any issues and the buyer has already agreed to complete the transaction. At this point, the deal has become a legally binding agreement. It is important to keep track of all orders, shipments, and payments in accounting software so you can limit the number of rejections received.

What is the difference between an invoice and a purchase order?

A purchase order is sent from a buyer to a seller in order to request the purchase of the specific goods or services identified in the order. It also outlines any related terms of purchase, including delivery instructions and the payment method. Purchase orders help sellers track their inventory when fulfilling the order. They also help provide legal protection to the seller by documenting the buyer’s intent to purchase.

On the other hand, an invoice is sent from a seller to a buyer. If a purchase order was used to initiate the transaction, the invoice will contain terms in accordance with the purchase order. Invoices specify the price and quantity of the goods or services being sold. It also normally states when payment for the order is due. An invoice is typically provided upon the delivery of the goods or at the time of service.

What is the difference between an invoice and a bill of sale?

Although similar, an invoice and bill of sale are not the same. An invoice is a non-legally binding request sent by a seller to a buyer that identifies which goods or services are being purchased and the due date for payment. A bill of sale is a legally binding document where a seller confirms delivery of the goods and transfer of legal title to the property to the buyer for immediate payment at an agreed upon price. As such, a bill of sale may contain information in addition to that contained in an invoice, such as warranties and other promises of the parties.

Both documents are commonly used for commercial purposes, but bills of sale are also often used for private transactions of valuable items, such as vehicles, equipment, animals, art, and jewelry. Invoices are typically not signed by the parties; however, a seller typically signs a bill of sale, and the buyer may or may not sign as well, depending on whether the buyer is also making any promises in the document. An invoice maybe be provided before, during, or after the delivery of the goods or services provided, while a bill of sale is normally provided upon delivery.;

Invoices are often used in transactions where the seller issues a credit or debt on the buyer’s account. On the other hand, a bill of sale is typically a request for immediate payment and is therefore often used in cash transactions without any credit or debt involved. Bills of sale sometimes request payment at a future due date, but this is less common.

Ready To Get Started? Create an Invoice

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Checklist

Step 1: Gather Information

As you complete your invoice, you will need to provide certain relevant information. This includes the name and address of the sender and customer, the due date, and the quantity and price of each billable item.

Step 2: Answer Key Questions

Use the information you collected to complete the invoice. We make this easy by guiding you each step of the way and help you customize your document to match your specific needs. The questions and information we present to you dynamically change depending on your answers and the state selected.

Step 3: Review and Send

It is always important to read your document thoroughly to ensure it matches your needs and is free of errors and omissions. After completing the questionnaire, you can make textual changes to your document by downloading it in Microsoft Word. If no changes are needed, you can simply download the PDF version and sign. These downloads are available by navigating to the Documents section of your account dashboard.

Step 4: Follow Up on Any Delinquent Payments

In the event that a payment is not received by its due date, you will need to follow up with the customer. Any mandatory late fees may be assessed at this point.

Step 5: Complete Related Documents

Other documents may offer additional legal protection. For example, those who use invoices often incorporate sales contracts and bills of sale into their existing business practices.

Ready To Get Started? Create an Invoice