In cooperation with Bokio
In many businesses, the invoice is an important pillar of success. Without getting paid for their hard work, no business can survive. As an entrepreneur, there can be a lot to think about, in this guide we cover everything you need to know about invoices and invoicing.
What is an invoice?
Let's start with the basics: what exactly is an invoice? You could say that an invoice is a document created by a seller and sent to a buyer. Once paid, an invoice serves as written proof that payment has been made. When you do business with other companies, a full invoice should always be issued.
Exactly how an invoice looks can differ slightly from time to time and between different companies, there are also slightly different types of invoices that affect both its appearance but above all its function.
As a business owner, invoicing is one of the most common ways to get paid, having a good grasp of how to handle invoices, both how to send them and how to pay them is essential to the success of your business. If your business handles a lot of invoices, an efficient invoicing program can make things easier and save a lot of time.
What is the difference between an invoice and a bill?
In everyday language, the words invoice and bill are often used interchangeably to describe the same thing. In fact, they are exactly the same thing: a written demand for payment.
As a private individual, the term bill is often used, while invoices are often used from business to business. But bill and invoice mean the same thing.
What does an invoice look like?
An invoice can look a little different, depending on industry standards and your preferences. However, there are certain things that an invoice must contain:
Name, address and contact details of the seller and buyer.
Invoice number and date.
a description of the goods or services supplied, including quantity and price
VAT registration numbers of the seller and the buyer.
The total amount to be paid, including VAT and any other charges or discounts.
The terms of payment, including due dates and accepted payment methods.
Any additional information that may be relevant, such as delivery details, contract number or order number.
If you invoice customers from other countries, there may be additional items to include. It is common for invoices to differ from each other both in style and form.
How to pay invoices?
How to pay an invoice can vary from case to case, depending on the type of invoice and the solution you use to pay. In most cases, the invoice will indicate how the payment is to be made.
A common way to pay invoices is by direct bank transfer. Exactly how you go about this can vary between banks, and there are often several ways to pay an invoice.
In recent years, more modern payment methods have emerged, such as Swish and Klarna. Many companies offer customers different options for paying their invoices, leaving it up to the customer to decide what is most suitable.
In most cases, the procedure for paying a bill is relatively self-explanatory.
Dispute invoices
Sometimes a customer may dispute an invoice, which means that the customer does not accept the invoice. There can be different reasons for disputing an invoice. It could be that the amount on the invoice does not match the amount agreed. In another case, it could be because the service did not deliver the type of quality you agreed on. In a third case, the price may be correct but the wrong type of service or goods have been specified.
As long as the disputed invoice has a relevant basis, it is usually easy to find a solution by discussing what has gone wrong with the customer in question. Usually, it's just a matter of crediting the old invoice and sending a credit note to the customer/company.
If a customer disputes an invoice, it's a good idea to keep a record of the relevant invoices and communications so that you can substantiate your arguments in case the dispute needs to involve the help of a third party.
How to invoice?
Sending invoices is an important part of running a business, so it's important to know how to invoice your customers. Exactly how you go about sending an invoice will vary slightly depending on whether you send an invoice via a self-employed company, via your own company "manually" or from an invoicing program, for example.
Below is a general guide on how to go about invoicing:
● Create an invoice
Use an invoice template or invoicing software to create an invoice. Double-check that all necessary information is included on the invoice.
● Send the invoice to the customer
Once you have created an invoice, the next step is to send it to the customer. Nowadays, it is most common to send invoices online, as it requires less administrative work and is more time-efficient.
● Follow up the payment
Record when the time to pay the invoice expires. If the customer has not
paid before its due date, you should send a reminder. If the customer still doesn't pay, you will have to look at possible measures to recover the money, although this is a very rare situation.
● Register the payment
Once you've received the payment, it's time to record it in your accounts and file the invoice. If you use Bokio Business Account, the payment will be matched with the invoice by itself and posted automatically.
Invoice template
For someone who has never sent an invoice before, it can be very helpful to have a ready-made template to start from. Then you get a lot of help along the way and do not have to create the invoice from scratch.
Having a ready-made invoice template not only saves you from feeling insecure about whether you have included all the content on the invoice, it can also save you a lot of time by just changing the details every time you send a new invoice.
There are a number of different invoice templates available on the internet, before using any it is important to ensure that it is a credible company and that the invoice template contains everything you need to invoice your customers.
All businesses are required to keep records of their business transactions, which means you need to have an accounting program for your business. Many accounting systems have integrated invoicing functions, so you don't need to have a separate system for invoicing and accounting. Another advantage of invoicing from your accounting software is that your invoices are integrated directly into your bookkeeping.
Can you invoice without a company?
Yes, you don't have to start your own business to send invoices. Nowadays, there are a number of so-called self-employment companies on the market, whose business model is that you send invoices through them in exchange for a fee.
Self-employment agencies simply act as an intermediary between you and the customer you invoice. At the time of invoicing, self-employed workers pay taxes and social security contributions on your behalf.
However, if you plan to invoice on a regular basis, it is much cheaper to set up your own business and invoice that way instead.
Apart from not having to pay a fee on each invoice, there are many advantages to running a business, such as the possibility of deducting equipment and the possibility of collecting low-taxed dividends (if you have a limited company).
Invoice purchases
Invoice factoring is a financial service whereby a third party buys a company's invoices. As the credit period on an invoice is usually 30 days, this means that the company is out of pocket during this period.
To avoid this, you can sell your invoice through invoice factoring, where you get paid directly and the company buying the invoice is responsible for collecting the payment from the customer. This is done in exchange for a fee, often equivalent to a few percent of the invoice amount.
Invoice discounting can be particularly useful for businesses with long payment times or experiencing temporary liquidity problems. It can also be a solution for small and growing businesses that need extra capital to finance expansion.
Payment terms on invoices
The payment terms on an invoice include the rules and conditions that determine how and when a customer should pay the invoice. It is up to the seller to decide what these are, based on the legal framework in place. It is important that the payment terms are clearly communicated on the invoice.
Common payment terms include, among others:
Payment methods
Different companies accept different payment methods. Bank transfer, Swish or card payment with Visa or Mastercard are common payment methods.
Interest on arrears
It is important to make it clear what happens if the recipient does not pay the invoice within the specified timeframe. The payment terms you choose for your business can have an impact on how your customers feel about doing business with you.
If you have a long credit period, this may be attractive to the customer, but it also means a greater financial risk for you. On the other hand, a short credit period is good for your liquidity, but it can be stressful for the customer.
Due date
The due date of an invoice is the date by which payment must be received by the seller. This means that if you have paid an invoice on the due date using a payment solution that takes one business day, the payment will be delayed.
The due date is usually at the top of the invoice and can be worded in slightly different ways, for example: "payment received by us" or "due date".
The number of days the customer has to pay the invoice can vary. Most commonly, customers have 30 days to pay from the time they order a product or service. However, 30 days is not a legal requirement and there can be both shorter and longer credit periods (the time between invoicing and payment).
Different types of invoices
In this guide, we have so far only talked about invoices in general terms, but the fact is that there are many different types of invoices. What they all have in common is that they aim to collect a payment from a customer, but that's where the similarities end. Below, we'll go through the different types of invoices.
Invoice on account
An on-account invoice is a type of invoice that is split over the course of a project. It can be seen as a kind of partial payment in advance, and can be beneficial for projects that run over a long period of time or involve large amounts of money.
Pro forma invoice
A pro forma invoice is a relatively uncommon type of invoice and unlike regular invoices, the purpose of a pro forma invoice is not to get paid. A proforma invoice is used as a formal document to explain the contents of a package for export purposes.
For example, if you send a gift or a customer sample to a customer abroad, the pro forma invoice serves as a record of the contents of the package, which can help with customs matters. However, the pro forma invoice is not legally binding for requesting payment.
Credit invoice
A credit note is used to correct an incorrect invoice previously sent. This may be necessary if, for example, the customer has paid an invoice only to realize that there was something wrong with the goods or services. For example, the price was not right, the wrong goods were delivered or the service did not meet the agreed terms.
A credit note is sometimes referred to as a reverse invoice, negative invoice or credit note.
RUT/ROT invoice
If you perform services that fall under the RUT or ROT framework, you must reduce the amount on the invoice, in order to then have the last part of the work's income paid by the Swedish Tax Agency. Bokio provides support for sending invoices with RUT and ROT deductions.
E-invoice
An e-invoice is an electronic invoice that is integrated directly into various business systems, including accounting software. If you normally send invoices in PDF format, you will need to do manual work to administer the invoice, whereas an e-invoice is handled completely electronically and registered directly in your recipient's financial system or bank.
Self-billing
Normally, it is the seller who creates and sends an invoice to the customer. A self-billing invoice, on the other hand, is the opposite - the customer creates an invoice for themselves but in the name of the seller. A self-billing invoice is also known as a reverse invoice.
This can be a good solution if you are a consultant who regularly invoices the same customer, as you have a good overview of the time reporting and thus invoice the correct number of hours.
Although the customer creates the invoices, the seller is always ultimately responsible for them.
Simplified invoice
A simplified invoice is an invoice that does not have the same extensive requirements as a standard invoice. However, information on when the invoice was issued, who the seller is, what goods or services have been sold and the VAT to be paid must always be included, even on a simplified invoice.
Invoicing with Bokio
Invoicing can be a bit complicated, but Bokio makes it easy. When you invoice in the same place as you book, you don't have to keep track of which invoices have been paid or not manually. Bokio keeps track for you, and posts the payment automatically as soon as an invoice has been paid.
Read more about invoicing in Bokio
