Loading the player...

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.

E-Invoicing

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.

RELATED TERMS
  1. Invoice Financing

    Invoice financing is a way for businesses to borrow money against ...
  2. Pro-Forma Invoice

    A pro forma invoice is a preliminary bill of sale sent to buyers ...
  3. Factor

    A factor is a financial intermediary that purchases receivables ...
  4. Consular Invoice

    A document certifying a shipment of goods and shows information ...
  5. Accounts Receivable Financing

    Accounts receivable financing is a type of asset-financing arrangement ...
  6. Due To Account

    A due to account is a liability account typically found inside ...
Related Articles
  1. Small Business

    Working For An Unethical Firm: What Are Your Options?

    If you're reading this at your work computer and think it applies to you, take an early lunch and don't return.
  2. Small Business

    Square vs. Stripe (SBUX, TWTR)

    Square and Stripe are transforming payment processing. However, while similar in many ways, the companies do have their fair share of differences.
  3. Investing

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.
  4. Personal Finance

    Which Financial Documents You Should Save or Shred

    Here's a list of financial documents you should keep, how long to keep them and tips on where to store them.
  5. Personal Finance

    Accountant: Job Description & Average Salary

    Discover what the job description of an accountant entails, along with education and training, salary and skills necessary for success.
  6. IPF - Banking

    Procrastinator's Guide To Bill Payment

    Avoid punishing late fees and keep your credit score intact with these 10 tips.
  7. Taxes

    4 Things to Do Now to Plan for a Trump Tax Cut

    Here are four year-end strategies to make the most of Donald Trump's plans to lower taxes.
  8. Taxes

    Tax Preparation Fees: How Much Is Too Much?

    These are the five most important variables to consider, when deciding if a tax preparer is charging a reasonable amount for services.
  9. Tech

    Bitcoin Transactions Vs. Credit Card Transactions

    We provide an overview of the differences between bitcoin and credit card transactions, and the advantages of using one over the other.
  10. Personal Finance

    Automating Your Bill Payments

    Automation can be a painless (and free) way to remove the stress of bill scheduling from your life - if you do it right.
RELATED FAQS
  1. What are some examples of debit notes in business-to-business transactions?

    Review some examples of debit notes in business-to-business transactions and learn why debit notes would be used instead ... Read Answer >>
  2. When should a company recognize revenues on its books?

    When a company makes revenues from its operations, it must be recorded in the general ledger and then reported on the income ... Read Answer >>
  3. How can a creditor improve its Average Collection Period?

    Read about some of the ways that a business can improve its accounts receivable management practices to shorten its average ... Read Answer >>
  4. What Are the GAAP Standards for Digital Documents?

    Learn how Sarbanes-Oxley Act of 2002 affects document storage requirements under GAAP. Read Answer >>
Hot Definitions
  1. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  2. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  3. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  4. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  5. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  6. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
Trading Center