An invoice is a commercial document that is used to charge for a good or service. It is sent from the provider of a product or service to the individual or company purchasing it and does not require immediate payment in most cases. In the document, each expense is broken down item-by-item to give the client a strong understanding of what was charged. In simpler terms, it can be viewed as a bill.
What are the Benefits of an Invoice?
Sending an invoice – no matter how small or large the service or product that was sold, is almost always a smart move. Here are some reasons why:
- Eases buyer-seller relations as it provides clarity to the buyer on what was charged and why
- Allows payment to be delayed, giving the client enough time to inspect the product or service, and pay for the full amount
- Can be used as a quote, giving the buyer an outline of what will be charged
- It’s professional and courteous, leaving the customer with a more positive impression of your company
What does an Invoice Include?
Typically, an invoice includes the following:
- The company name and address are staples of an invoice. The company name can be replaced by an individual’s name if doing freelance work. Having the address not only shows the company is reputable, but it allows sold products to have a return address and allows invoices to be paid by check through the mail.
- A ‘Bill To’ section lists all of the significant details of the client purchasing the products or services. Their name, address, phone number, and the date of the transaction are almost always included. Additionally, most have an invoice number to track past and current clients more efficiently.
- Lists of both the products and/or services purchased are the basis for the invoice. They allow for detailed descriptions of what was purchased, how many, the cost of each, and the total amounts altogether. Although some invoices only have lists for products and vice versa, all invoices have a section to list out the details of the expenses.
- A comment box allows the issuer to list pertinent details regarding the invoice, such as the types of payment accepted, corrections to listed expenses, or thank-yous to the client.
- The number of days until payment is due is a must for every invoice. Having a concrete date that the invoice is due ensures both parties are clear on the terms of payment and lets the client breathe easy if they do not have the immediate funds to cover the invoice amount.
What is an Invoice Number?
An Invoice Number is a number systematically assigned to each invoice. It is used to track and identify each payment, service, or product sold. Each invoice number needs to be unique in order to efficiently organize each payment. The number doesn’t have to be an exact length – as long as it makes sense to the company or individual issuing the invoice. Examples include “A-0001, A-0002, etc.” or “551, 5552, 5553, etc.,” or “ABCC, ABCD. ABCE, etc.” Invoices can contain any combination of numbers or characters. However, we recommend shying away from special characters to ensure it can be read by any computer it comes across, with the exception of dashes. It may not seem important now, but assigning structure to the way you number invoices can provide invaluable; such as adding a certain character for each month and year the invoice was issued or a code for the worker that sold the product. For example, the letter combo “MA-24” can refer to the invoice being billed on May 24th. To highlight what should go into an invoice number, keep in mind points below.
- Assign a unique Invoice Number to each document
- Make the number sequential
- Avoid Special Characters (with the exception of dashes “-“)
- Create Character Combinations (“JC-21”) to track dates, types of products, service people, etc.
Invoice Number Example:
How to Price your Services
First and foremost, there is no “correct” price for a service, as depending on the experience of those doing the job, the length the job takes, the number of companies bidding for the work, and the customer’s perceived value of the service rendered, the price point can vary greatly from person to person. To determine the price you should state for your services, take the below factors into consideration.
Determine your Costs
Before setting a price for a service you or your company provides, you will first want to find and add up all the costs that were incurred in order to provide the service. This includes the following:
- Labor Cost – The hourly wages paid to you and/or your employees. If the amount of time the job will take is not 100% clear, use this amount as a rough quote.
- Materials Cost – Any products or items that were purchased in order to complete the job. Things that can be used more than once, such as a tractor or wrench set are typically not included. Mulch, nails, plumbing, paint, wood, and any other material that will be left with the client should be included in this cost.
- Overhead – Any costs that cannot be pinpointed to a direct service should be included here. The electricity bill, rent, depreciation of vehicles/equipment, legal fees, and general supplies.
More about Labor Cost
There are generally two (2) ways to charge for labor. Each has there advantages and disadvantages, and are typically chosen depending on the type of service provided.
- Hourly Pricing – By charging hourly, the company or individual conducting the services charge a pre-determined hourly rate. While the hourly rate is set, the number of hours that the job will take is not. If the job goes over, the company gets paid for each hour of work. While good for the company, this type of pricing can leave clients unsatisfied with the cost of the job as they can end up paying far more than they had expected. Additionally, companies that charge this type of pricing can find it leaves workers rather unmotivated, as the speed in which they complete their work does not benefit them in any way.
- Flat Fee – This method of pricing is preferred by customers as they know the price they are paying from beginning to end. Companies that charge a flat rate can either benefit or falter as a result of charging hourly – if they can complete the job in less time than anticipated, they make the same amount. However, if the job takes significantly longer to finish, the job can prove costly to the business.
Checkout Competitors’ Pricing
By comparing your prices to those of a competitor, you can get the idea of the general price point you should hover around. While lower may sound more appealing, charging a slightly higher price can give prospective customers the sense that your service is better; however, the service should be better if you plan on retaining long-term customers.
Account for Profit
After you have calculated your expenses, you will want to markup the job to account for profit and unexpected costs. The amount of money you decide to take in profit will depend on many variables, including what your competitors are charging, the competitiveness of your field, and the current state of the economy. Once this the project cost is calculated, you can either give the invoice to the client beforehand as a quote (can change after services are rendered) or afterwards as a bill.
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