What is an Invoice
An invoice is a commercial document that itemizes a transaction between a buyer and a seller. If goods or services were purchased on credit, the invoice usually specifies the terms of the deal, and provides information on the available methods of payment. An invoice is also known as a receipt, bill or sales invoice.
Companies may opt to simply send a month-end statement as the invoice for all outstanding transactions. If this is the case, the statement must indicate that no subsequent invoices will be sent. Historically, invoices have been recorded on paper, often with multiple copies generated so that the buyer and seller each have a record of the transaction for their own records. Currently, computer-generated invoices are quite common. They can be printed to paper on demand or sent by email to the parties of a transaction. Electronic records also allow for easier searching and sorting of particular transactions or specific dates.
BREAKING DOWN Invoice
An invoice must state it is an invoice on the face of the bill. It typically has a unique identifier called the invoice number that is useful for internal and external reference. An invoice typically contains contact information for the seller or service provider in case there is an error relating to the billing. Payment terms may be outlined on the invoice, as well as the information relating to any discounts, early payment details or finance charges assessed for late payments. It also presents the unit cost of an item, total units purchased, freight, handling, shipping and associated tax charges, and it outlines the total amount owed.
Importance of Invoice Date
The invoice date represents the official date in which the goods have been billed. Therefore, the invoice date has essential information regarding payment, as it dictates the credit duration and due date of the bill. This is especially crucial for entities offering credit, such as net 30. The actual due date of the invoice is usually 30 days after the invoice date.
Invoices and Accounts Payable
Invoices track the sale of a product for inventory control, accounting and tax purposes. Many companies ship the product and expect payment on a later date, so the total amount due becomes an account payable for the buyer and an account receivable for the seller. Modern-day invoices are transmitted electronically, rather than being paper-based. If an invoice is lost, the buyer may request a copy from the seller. The use of an invoice represents the presence of credit, as the seller has sent a product or provided a service without receiving cash up front.
Invoices and Internal Controls
Invoices are a critical element of accounting internal controls. Charges on an invoice must be approved by the responsible management personal. Alternatively, an invoice is matched to a purchase order, and upon reconciling the information, payment is made for approved transactions. An auditing firm ensures invoices are entered into the appropriate accounting period when testing for expense cutoff.
Since the advent of the computer era, people and businesses have found it easier to rely on electronic invoicing as an alternative to paper documents. Electronic invoicing, or e-invoicing, is a form of electronic billing to generate, store and monitor transactional documents between parties and ensure the terms of their agreements are fulfilled. These e-documents may include invoices and receipts, purchase orders, debit and credit notes, payment terms and instructions, and remittance slips. Digital invoices are normally sent via email, web page or app. Advantages include permanence and resistance to physical damage; ease of searching and sorting for specific names, terms or dates; increased auditability; ability to print or reproduce on demand; ability for data collection and business intelligence; and reduction of paper use.
E-invoicing includes several technologies and entry options and is used as a general term to describe any method by which an invoice is electronically presented to a customer for payment. Several e-invoicing standards, such as EDIFACT and UBL, have been developed around to world to facilitate adoption and efficiency.