What Is an Invoice?

An invoice is an important document that a business cannot do without. Perhaps, you've come across the term on many occasions but still unsure what it means or what it entails; you can get all the information you need about invoices here. We at WeInvoice have also prepared customizable invoice templates that you can download and use for free.

Below, we’ll cover:

  • What Is an Invoice?
  • What Is an Invoice ID?
  • What Does An Invoice Look Like?
  • How to Assign Invoice Numbers?

What Is an Invoice?

An invoice is a document sent from a seller to a buyer, which itemizes the list of goods and services bought, specifying the price of the goods and general terms of the sale. Invoices can come in different forms; the traditional ones are usually in official and identifiable paper forms with the sale information. However, we can now have modern electronic invoices that are generated automatically and sometimes manually.

Invoices are referred to as a sales and purchase invoice to the seller and buyer, respectively, and it is also known as a tab or bill. They are presented by a business to a customer prior to or after a business transaction, such as offering a service or supplying goods.

Regardless of the type of invoice business issues to clients, it generally contains all the sale information and is important in binding both parties to ensure they carry out their end of the contract. One of the reasons for setting up businesses and offering products and services is to get paid, and your invoice is a key part of this aspect of the business.

What Is The Purpose of Invoice?

Invoices serve important purposes for a business, as well as the receiving client or customer. From the definitions above, it would be obvious that invoices are crucial for the business's documentation. There are other numerous functions that an invoice serves, and the most important ones are listed below.

For Bookkeeping

Invoices are extremely important for the seller in bookkeeping since they are an official record of all sales. Making the proper documentation can be a breeze if the invoicing system is already in place. It can be used to track all the sales made, including the price for monitoring revenue and quantities for monitoring inventories. Large and small businesses use invoices of past sales to predict sales for different times of the year. The list of what can be done with invoices goes on.

Legal Purposes

Due to the information that is contained on invoices, it can come in handy for legal purposes. If there is a disagreement between the buyer and seller, they can easily refer to the invoice of the transaction for clarifications. In cases of lawsuits, it may be all your business needs to come out on top.

Marketing and Advertising

Invoices serve as an important object of advertising and for determining how to advertise. An invoice automatically markets your products and services to everybody who sees them; that is one of the reasons it is very important to include your contact details so that you can be contacted easily if somebody else needs the same or different service. You can also use your invoice to plan your advertisement and marketing. This is because the information contained on the invoices can give you a hint of the times of the year each product sells, the products that sell most, and those that are buying specific products.

Tax Recording

Your yearly tax information is supported by your invoice. The daily records and business transactions recorded on your invoices can make it easy to document everything you need to file your tax documentation.

What Is an Invoice ID?

An invoice ID is a unique combination of alphabet, characters, and number that is used for the identification of each invoice. The invoice ID can be determined in different ways, depending on how big the company is. Usually, it consists of texts that represent the name of the buyer. For example, ABC may be used as an invoice ID for ABC Limited.

The date and a number may then be added to the invoice ID to represent each transaction (for example, ABC-01122020-001 for a business dealing with ABC Limited on the 1st of December, 2010), or a number may be directly added without the date (for example ABC001). Usually, the numbers start at one and are automatically increased as more invoices are added.

Invoice IDs make it possible to track each transaction, and when letters are sent or received concerning any business deal, the invoice ID can be included so that reference can be made much easier. That is why some invoice IDs may also combine the date the trade was made or service was rendered.

What Does An Invoice Look Like?

Invoices are generally a form with a careful listing of the transaction parameters. In addition to the name, address, and logo of the selling or service-rendering company, the invoice also records the goods or service, the price, quantity supplied, discounts if applicable, dates, and official signatures. You will find a detailed analysis of how an invoice looks below.

  • Billing company details: This part of the invoice is usually at the top and is consistent throughout all the invoices of a business. It contains the data of the selling party. The name of the company, address, contact information is some of the important data that must not be missing. This section may also contain additional data that serves to supply more information about the business; hence the invoice can also advertise the business.
  • Dates: The date the invoice was generated must also be included on the invoice. However, other dates, such as when the payment would be made or when goods will be supplied, will not be left out.
  • Invoice number: No two invoices can have the same invoice numbers. The number is a unique tag by which each invoice is identified. It helps the seller to differentiate between all the invoices it sends to all its customers.
  • Terms of payment: How does the buyer intend to pay for the goods or services rendered? Have the fees been paid in full, or is there a balance to be expected later? All this information must be included in an invoice.
  • Customer information: The buyer information would also be specified in the invoice alongside their contact information.
  • Product or service details: This would normally occupy the largest portion of the invoice. This is where the complete description of the products and service would be included. The quantity and price would also be stated, with the total calculated and put under.
  • Additional details: The invoice would also contain other details such as delivery methods, signatures, dates, and any other relevant information.

How to Assign Invoice Numbers?

The invoice number is as important as any other component on the invoice. It is perhaps, only behind the amount due, as far as the ranking of important numbers on the invoice is concerned. The invoice number is mainly for identification, and it would come in handy when you need to make references regarding a sale, complaint, or any management decision.

The structure of invoice numbers can come in different formats, but it is important that a business uses a method that prioritizes ease. Assigning random invoice numbers defeats the entire purpose of using numbers in the first place. While there are numerous ways that a business can employ, below is a summary of the popular techniques.

  • Sequentially: The most popular method of assigning numbers to invoices is using a sequence of numbers. Usually, the number starts at 1, but you also have the freedom of starting from any number of choices. This method makes it easy to accept an unlimited number of invoices into the records.
  • Chronologically: Arranging invoices chronologically means that they are assigned based on the date of generating the invoice. This is also an effective method as there are no two days with the same dates, although multiple invoices would have sequential numbers to differentiate them.
  • Customer ID: If your company assigns an ID to specific customers, you may use their ID in combination with numbers to specify each invoice.


What are the types of an invoice?

There are numerous invoice types depending on the purpose they serve and the issuing company. The common ones include sales invoices, purchase invoices, pro forma invoices, tax invoices, interim invoices, commercial invoices, final invoices, recurring invoices, etc.

What information is put on an invoice?

The invoice contains information such as the seller, buyer, and transaction details.

Whether you run a large or small scale business, or maybe you're a freelancer, you must pay attention to how to get your invoicing done in time for sending to clients. Despite their immense importance, they can be tricky, even for those not new to managing businesses.

WeInvoice has the largest reservoir of invoices and invoice generators online. You, too, can download and use it for free. Using our free downloadable invoices makes it easy to document your sales and get paid quickly. Don't keep your customers waiting; download and send to them today!