In the world of business, invoices play a vital role in keeping track of finances and ensuring smooth transactions between buyers and sellers. Whether you're an experienced entrepreneur or just starting your own business, it's crucial to understand what an invoice is and how it functions. In this blog post, we'll explore the concept of invoices, why they're essential for every business, and what to look for when dealing with subcontractors or suppliers.
An invoice is a detailed document that acts as a bill (in the hands of the recipient) or request for payment between a seller and a buyer. It is a note to say, ‘hey please pay me for this thing or this service’. It provides information about the goods or services sold, including quantity, description, price, and payment terms. An invoice also includes important details such as contact information for both the seller and the buyer, an invoice number, the date it was issued and any taxes that might be relevant (like GST).
Invoices are typically sent by the seller or service provider to the buyer or client. Various types of businesses rely on invoices for their transactions, including:
Example of a BUSINESS invoice here. You can send these manually or your accounting software may create and send them directly.
Editable invoice template by The Real Thiel
In some businesses, there may not be an invoice sent in advance (like when you buy things online or subscriptions). There should still be a paper trail though, like a copy of the invoice sent after purchase (showing the total and the payment made) and/or a receipt.
Even hobbyists who sell goods or provide services can send invoices, even though they are not technically running a business. A hobbyist is someone who is earning income from an activity or product that is a bit more ad hoc, less strategic, less frequent and at smaller income amounts. They have not registered an ABN.
Important: Hobbyists should send an invoice AND a statement by supplier form (click here) to their customer. This tells the customer that they are a hobbyist (hence no ABN listed on the invoice) but allows the customer to then potentially include that cost paid as a deduction in their own tax returns.
Example of a HOBBYIST invoice here.
If you receive an invoice with no ABN and without a statement by supplier form, then usually that expense won’t be tax deductible.
When creating an invoice, make sure to include the following information:
This establishes your identity as a legitimate business and makes it easy for clients to reach you if needed.
*OR statement by supplier form attached (if hobbyist).
When engaging a subcontractor or paying a supplier, before paying the invoice, it's important to carefully review their invoices. You should make sure all of the above dot points are considered, especially the ABN (or statement by supplier form). You can also perform an ABN look up here if you ever need to.
By paying attention to these elements on invoices from subcontractors or suppliers, you can minimise errors, discrepancies, and potential disputes. This promotes smooth financial transactions and helps maintain healthy business relationships.
Understanding the importance of invoices and how to create and review them is essential for businesses of all sizes. Invoices serve as a record of transactions, ensure timely payment, and contribute to the overall financial health of a business. Whether you're a seller, buyer, freelancer, small business owner, or hobbyist, invoicing knowledge is crucial for maintaining professionalism and organized financial practices.
Now, be sure to send those invoices and chase those payments my friends!