Invoices are hardly reserved for businesses—everyone offering services in exchange for monetary compensation will have to issue an invoice at some point or another. As they are so common, many aspects of invoices are considered general knowledge and not covered in your usual guide. To make sure our guide answers all questions readers might potentially have, we have made sure to start from the very basics.

 

What Is an Invoice?

An invoice is defined as a “time-stamped commercial document that itemizes and records a transaction between a buyer and a seller” by Investopedia. In other words, it is a receipt for services provided by one party, to be paid for by the other party. It is often also referred to as a bill, a debit note, or a sales invoice.

This leads us to the next question:

 

What Is the Purpose of an Invoice?

The main purpose of an invoice is to provide a record of a transaction that has taken place, to be visible by all involved parties. This is important on several levels: for the party providing the service, it shows when the service was provided and what the agreed upon price was. For the party paying for the service, it acts both as a reminder to pay for the service and as a document detailing the terms, which is especially important for accounting. In a general sense, it serves as written proof of a payment agreement having taken place.

While it may be intuitive that an invoice should include the amount that needs to be paid, this also leads to the question:

 

Which Information Should I Add to an Invoice?

There’s much more to an invoice than just a list of the services provided and their prices. Here’s a quick rundown of everything you should be including:

  • “Invoice”: Your invoice has to be clearly marked as such somewhere; it’s best to place this on the top, in a visible spot.
  • Reference number: For accounting purposes, every invoice should have a unique number (you can use letters too!), and you should keep a record of each number, which is why sequential numbers work best for this purpose.
  • Your own information: If you’re a business, you will need to state the name of the company, its address, and any contact information. If you’re working freelance, then it’s a good idea to add your name and your contact information to the invoice (you can omit the address), so that the other party has a way to contact you in case of a dispute.
  • Your customer’s information: Every invoice should be clear about who is being charged (name, address, contact information), so that there is no potential for a mixup between different people paying for the same service. This also helps customers who want to claim back any VAT they have been charged.
  • Services being paid for: This is arguably the  most important part of the invoice—although each part is important in its own right—as it includes the heart of the matter. There are several different aspects of this:
  • Goods and services: Everything you are charging the customer for should be clearly listed, with each separate item in its own line for clarity.
  • Supply date: Every line of items or services should also include the date when it was delivered to the customer. Generally, you will want the services to be listed in this order, according to delivery or supply date.
  • The cost of each service or item: You should also include the individual costs of everything you are charging your customer with (in case you’re charging on an hourly basis for services rendered, you will put the cost of your labor per hour here).
  • The amount of items: This includes not only the amount of separate items that you have sold, but also the number of hours you’ve worked if you’re billing on an hourly basis.
  • Total amount: This includes both the amount for each separate line (the cost of each service or item, multiplied by the amount) and the grand total.
  • Payment: Once you’ve listed what the client needs to pay, you also need to give them a detailed explanation of how they can do that. This includes things like payment options (wire transfers, PayPal, cryptocurrencies, anything else that you take), a payment deadline and any potential late fees that you charge, as well as any discounts or promotions that you offer.

This is just a general overview of what most invoices will have to include. More specific information will depend on your own circumstances.

 

What Are the Most Common Types of Invoice Approaches Used in Business?

There are several different ways an invoice can be issued. This depends largely on the type of service or item being sold, but also whether or not this happens on a regular basis. Some of the most common approaches are:

  • Collective invoicing: This is a common wholesaler approach, where individual invoices are grouped together so that payments are handled through a collective bill account. This is often useful when a customer orders several times a month, so all items or services are listed within a single bill at the end of the period, making for simpler and low-cost accounting.
  • Subscription invoicing: If a customer is purchasing the same item or service on a regular basis, like a gym membership, a magazine subscription, or a food box, having them pay at the beginning of the subscription period simplifies the process significantly.
  • Progress billing: Services that take several months to complete can be charged incrementally, which can be used to keep track of the hours worked in case the job employs subcontractors as well. The same is true for especially expensive, industry-specific items, as clients can then pay the price in parts to lessen the burden.
  • Recurring invoicing: Similar to both subscription invoicing in terms of regularity, the difference is that recurring invoicing usually has a limited-time contract, like a rental agreement, while subscriptions tend to be open-ended.
  • Metered invoicing: In industries where a customer signs up for a certain package but is free to purchase add-ons during the billing period, it is important to keep track of how much of the services within the package were used, if anything was purchased aside from that, and to show them clearly itemized on the invoice.

The type of invoice you choose will also depend on the type of business you’re offering.

 

What Type of Businesses/Freelancers Issue Invoices?

Invoices are issued by those who offer items or services in exchange for money. In other words, if you’re selling anything, you will have to provide an invoice, both for your own peace of mind (and later for accounting purposes) and for your customer’s. This way, all involved parties can see what they owe (or are owed), what the pricing list is, when the payment is due, and whether there are any repercussions for not paying on time. Typical types of service providers issuing invoices are consultants or other types of service contractors.

 

How Do I Structure an Invoice?

When it comes to structuring an invoice, the main difference is between items sold and hours billed. The two possibilities are, in fact, more similar than they appear at first:

  • Items sold. When it comes to selling certain items or services with a fixed cost, you will list the cost of a single item, the number of items provided, and the total cost—which is the product of the first two.
  • Hours billed. Not unlike the previous option, you will need to list your hourly rate, the number of hours worked, and the total cost, which is the product of the hourly rate and the hours worked.

In a certain sense, the number of hours worked could be seen as the item being sold, which makes the two possibilities all the more similar.

 

What Are the Different Ways to Manage Invoices?

Managing invoices can be done in one of two straightforward ways: manually or using automatic software solutions.

For manual invoice management, you will need invoice templates to make your job of filling in the required information and sending it to the customer faster and easier. Here are some of the most common ones:

  • Standard: A simple template that includes a place where to put the reference number, the name of the customer, the items being sold, amount, and total cost. 
  • Timesheet:  If you bill by the hour, timesheet invoice templates make it easier to keep track of how much time you’ve spent on the job and bill the customer accordingly.
  • Recurring: If you’re billing your customers on a regular basis and without changes, you may not need all the options other templates offer, so a recurring invoice template may work best for you.
  • Pro forma: A pro forma invoice is an estimate, sent to the customer before the job is done, to let them prepare the funds needed for payment or simply to give them advance notice.
  • Past due: If your customer has not paid their invoice on time, a past due invoice is sent, detailing—aside from the usual information—the amount they now owe in late fees or interest, along with a deadline for payment.
  • Mixed: Sometimes you have to refund a customer as well as charge them for something else, which means you need a mixed invoice template that allows for both options.
  • Interim: If you are working on a large job, you may require payments at various stages, which is where the interim invoice template comes in.
  • Final: As the last stage of your large job is completed, you will need to send the final invoice, complete with all the details of every segment (noting which ones have already been paid, of course).
  • Expense: If your client is covering the cost of materials or any other expenses, you will have to invoice them for this as well, with a separate expense invoice template.
  • Debit: In case more work was completed than previously agreed upon, instead of adding it to a completely new invoice, you can choose to add it to a debit invoice which shows how much more the client needs to pay you.
  • Credit: If you wish to refund your customer for any reason, for example a return or a mistaken overbilling, you issue a credit invoice, which always shows a negative amount.
  • Commercial: If an item is shipping across borders, the invoice might need to include additional information like package dimensions, weight, value, etc. 
  • Electronic: This is simply any of the above in an electronic format, which makes it easier to keep track of your invoices, manage your accounts, and removes a burdensome paper trail.

When it comes to automatic software solutions for generating invoices, there are plenty of them that fit a wide variety of needs. However, the best software will handle all invoice types to a certain degree, although some specialize in a certain niche (like subscription billing), which means you may simply not need everything they offer. As only a few offer a free plan, which tends to be severely limited in any case, you will need to do some research before choosing which solution to pay for in order to figure out how it fits in with your needs.

Read also our review of 7 best invoicing software 2021.

 

Is an Invoice a Legal Document?

In short, no. In and of itself, an invoice is not a legally binding document because it is one-sided: it is provided by one business to the other to request payment. It is only after both parties have agreed to the terms laid out by the invoice (or made the necessary changes).

 

How do I manage invoice contracts?

  • Signing contracts prior to sending invoices
    As invoices are not legally binding, customers ordering, for example, consumable items and then refusing to pay for them can incur high costs for the vendor. Some businesses and/or freelancers might decide that it is easier for them to require the other party to sign a contract stipulating what happens in case they decide to cancel the order, which often includes partial payment that could cover some or all of the cost. On the other hand, the business might decide to cancel the order themselves for any number of reasons, and in this case the customer could decide to sue them. To ensure this does not happen, the contract also outlines what happens in this event. And most importantly for our topic at hand, signing an actual contract makes sure you get paid in a way that simply issuing an invoice cannot do, complete with the possibility of legal recourse.
  • Can a client make changes or ask for price changes after the contract is signed?
    Absolutely. They’re not entitled to the change, however. If you want to be amenable, you can draw up a new contract with the price change and void the old one. Otherwise, they are legally required to pay you the initial price that was agreed upon.
  • Can a client opt out?
    This is the same as above: yes, as long as you, the other party in the contract, give your consent to it. A contract should have the terms and conditions of a one-sided opt-out, however. This clause usually serves to protect the other party and will not be without its stipulations, like covering some or all of the costs, depending on the stage at which they decided to opt out.
  • How to deal with breach of invoice contract?
    Even an iron-clad contract cannot prevent one side of breaching it—it usually just outlines what happens after that. First of all, you will have to ascertain what damages the breach of contract will deal to your business, if any. These can range from small inconveniences, like when the customer decides to opt out before you’ve even begun work on their order, to big losses, which happens if they pull out, leaving you unable to recoup your expenses and/or sell the item or service to someone else. For example, you may complete a service for them and then have them decide they don’t want to pay you.

Once you have a good overview of how the contract breach has hurt you, you can take legal action to seek out compensation. For minor inconveniences, this may not be worth the trouble and legal fees, so you may simply decide to ban the customer from doing business with you again. However, larger amounts (or those that have caused physical harm) can be well worth a legal battle. In any case, this is also likely to end with the customer barred from doing business with you again.

 

What Should I Include in a Sales Contract?

Sales contracts should cover an overview of the item or service in question, payment details, deadlines, and any late fees, but also what happens if either party decides to pull out at any point. Here’s a general overview of these points:

  • Involved parties’ information. The names and addresses, as well as contact information, of all parties involved should be clearly stated, to avoid confusion with individuals and/or businesses with similar names.
  • Detailed project description. This includes the services or items being sold, with a detailed description of the scope this includes, so that the client cannot ask you to do or provide more than you have already agreed to—and for the same price.
  • Project deadlines. This is to protect both you and the customer: you from the customer expecting an unreasonable turnaround time, and the customer from waiting for longer than they had anticipated.
  • Revision terms. You may not complete the project to the customer’s full satisfaction the first time around—you should outline how many (if any) revisions are included in the price they’re paying, how long they will take, and how much any additional ones will cost.
  • Pricing. Arguably the most important part of a sales contract, this ensures complete transparency, regardless of whether you are billing hourly, by item or service, or charging a flat fee for the entirety of the project. This also includes any additional charges like add-ons to what you’re already offering.
  • Payment information. List your payment options with a schedule to prevent a late payment, with a detailed late payment policy like fees. To get paid as soon as possible, you can offer a slight discount for the initial payment period. This section also lets you stipulate any required upfront deposits.
  • Cancellation terms. As we have already covered above, there are situations in which either party decides to opt out of the deal. This part should cover what happens in that event; depending on the stage of the project, you could ask for a certain amount of the total to be paid (if it is very late, then the complete amount), but also what happens if you’re the one pulling out, protecting yourself from the client’s legal recourse.
  • Copyright ownership. If you’re providing creative work, the copyright belongs to you until the client pays for it; then it is transferred to them. This should be clearly stated in the contract.

 

What Is the Correct Flow of Sending Invoices?

Aside from what to send in an invoice, there is also the question of when to send it. This also depends on the type of invoice you’re sending. For example, an estimate is not the same as an invoice—it does not imply the obligation to pay, but rather lets the customer know in which price range they should expect the final invoice to be.

The first item you should send your customer is a contract, if you have decided to draft one up. This means all parties are aware of the terms and consent to them, which provides both transparency and protection for everyone involved. Should the client choose not to sign the contract, you simply don’t complete the work for them.

In the case of a large project that is expected to cost a lot, some customers like to know how much they should expect to pay. This means that a quote or an estimate should be sent before the work is completed. It does not need to be precise as there is still a possibility the final invoice will end up costing more or less than the estimated amount—this is useful in construction, for example, where it is impossible to know the exact costs before the end but the contractor can still tell what price range they are looking at. But when the customer is aware how much they should expect to pay, they can prepare the funds or even work out a payment plan with you in order to suit both of your needs.

An invoice is sent once the work is completed. In the case of an item being sold, you may decide not to deliver it before the invoice is paid. Otherwise, your contract—if you’re using one—should state the payment schedule. The invoice also includes late payment information.

A sales receipt is sent once everything has been paid. It includes all the information from the invoice like price, total amount, but also the date when the invoice was paid, any late fees or discounts, and a reference number for accounting purposes.

 

What Is an Estimate vs an Invoice?

An estimate provides exactly what its name implies: an estimate of how much the work is expected to cost. It is sent before the work is completed, which can also be before it is attempted at all. In the latter case, the client who cannot afford the work can decide to not have it done at all. An invoice, on the other hand, is sent once the work is completed and can also include the date of completion. Some invoices, like recurring ones, can be sent at the beginning of the billing period, but those are previously agreed upon and expected at that time. See example of how an estimate template here.

 

When And How Should I Send Reminders After Having Sent Invoices?

In an ideal world, you would not have to wait very long after sending your invoice before it’s paid and settled. In practice, things tend to be less neat than this, and sometimes your client may simply forget to pay what they owe, or may not be able to afford it immediately. Some may decide against sending reminders, being afraid of annoying the clients. However, this starts from the (likely wrong) assumption that the client is maliciously refusing to pay, while many would actually appreciate being reminded.

 

How to avoid late payments

An ounce of prevention is worth a pound of cure, as they say, and this holds true in this case as well: it may be easier not to have to send any reminders at all. Some ways to do this include:

  • Being clear on the payment terms.  Explicitly state the payment due date on the invoice, as well as the repercussions for late payments.
  • Offer different ways to pay.  You can set up various payment options, from online payments using credit cards or e-wallets, to old-fashioned checks and wire transfers. This way, you let your customer pay in the way they’re most comfortable with.
  • Early payment discounts and incentives.  This is quite self-explanatory: if your customer has a palpable reason to pay on time, they are much more likely to do so. However, you should clearly state the date until which the discount is valid.
  • Ask for a certain amount upfront.  In the case of large projects, you may need a certain amount of the total in order to be able to complete the work at all.

Sometimes, however, there is no tiptoeing around it, and you may have to send that reminder after all.

 

How to phrase payment reminders politely

Phrasing a payment reminder is tricky, as the balance between being polite and being assertive can be hard to find. You want to remain in good graces with your customer, but you still want to be paid. As hard as it may sound, here are some tips that will make it easier:

  • Be clear in your subject line. There is no need to beat around the bush. Simply include the words “Payment Reminder”, the invoice’s reference number, and issue date so that the customer can immediately know what they’re working with.
  • Include the invoice. Sure, you’ve already sent it, but there’s no guarantee that it didn’t end up in a spam folder, for example, and was automatically deleted after a period. Even if it wasn’t, it is courteous not to force your customer to dig through their inbox.
  • Stay polite but firm. Greet the customer, include a line asking about their health, but then get to business. Do not apologize for the reminder. After all, they owe you, not the other way around, and apologizing will make you seem unsure of yourself, which does not necessarily inspire confidence in the other party.
  • Outline the payment terms and details. Remind your customer of your payment deadline, any late fees that you’re charging, but also explain how they can pay.
  • Ask for receipt confirmation. If you haven’t been paid yet, there is always a non-zero chance that you don’t have the correct contact information for your customer. Ask them to confirm that they’ve received your email—you can even explain that you’re not sure if they’ve received the first invoice. This way, you allow for the possibility that there was a mistake in the invoicing process, without assuming that the client refused to pay.

Read also our article: “Payment reminder email samples to get you paid”.

 

How to send payment reminders

The most intuitive way is writing an email with the bullet points we outlined above. You could make a template that you only need to fill in with the client’s details before sending. However, if you deal with a large number of clients and/or if late payments happen more often, it may be easier to automate the process.

Invoice management software often comes with late payment reminders for clients. You will usually have the client’s contact information already entered into the program, and if a previously set number of days passes by without the invoice being checked as paid, it will automatically send a reminder (those tend to be marked as automatic, which explains the impersonal tone of the reminder). If you’d rather send the reminder yourself but can’t keep track of all payments, you can set the software to remind only you, letting you handle it from there, instead of sending its own automatic reminder.

 

What Is Cash Flow & Things to Consider when invoicing

Investopedia defines cash flow as “the net amount of cash and cash-equivalents being transferred into and out of a business”—in other words, a positive cash flow means you’re profiting, and a negative cash flow means you’re losing funds.

Invoicing plays a big part in cash flow, as this is usually the way the business brings in money. Ineffective invoicing methods can hurt the business significantly: making mistakes in an invoice can lead to customers refusing to pay until the mistakes are corrected, leading to delays in payment. The same happens if you issue your invoices later than expected—even if the invoice is paid immediately, it is already late. Last but not least, cash flow can be affected when you don’t disincentivize late payments; if the client does not face any repercussions for paying late, they may be more inclined to do so in the future.

Invoicing practices can also help the business. If you send them out on time and make sure all the information is correct, as well as send out timely payment reminders, clients are much more likely to pay in time. Another significant aspect is the number of payment options you’re offering: not everyone is equally comfortable with any given option, and letting them choose from an array can simplify the process for all parties involved.

 

How to Track And Manage My Invoices

For freelancers and small businesses with few customers, there is nothing wrong with manually organizing invoices. It takes time and dedication, but it lets you keep an eye on everything and pick out any patterns your customers may have, which, in turn, lets you anticipate their needs and potentially offer better service down the line.

On the other hand, the manual tracking of invoices can quickly get difficult to keep up with, and an invoice tracking software may turn out to be a good investment. Not only do they simplify invoice managing as a whole, but they can often be integrated with an accounting software solution. This means that the vast majority of the process is automated, freeing up your time for other business-related issues. 

For more tips on tracking invoices read our ‘7 tips on tracking invoices’.

 

How to Accept Payments

We’ve already mentioned that offering various ways to accept payments can be the one of the keys to a positive cash flow. And while it may be clear that a wide array of payment options is ultimately a good thing, the fact is that it is impossible to offer every payment method, and you will still need to choose among countless options. Here are some of the most popular payment methods:

  • Credit/debit cards. They are the single most popular payment method for a reason: they are accepted virtually everywhere, everyone who has a bank account also has a card, and there is no need to jump through hoops to start paying with one. However, for international payments, they may not be accepted equally everywhere, and transaction fees can definitely add up, making the overall cost prohibitive.
  • E-Wallets. Notable e-wallets include Google Pay, Apple Pay, Venmo, M-Pesa and Alipay. Setting up an account is easy, while extra security comes in the form of biometric authentication, usually offered by the mobile devices. They are generally faster and easier to use than cards.
  • Payment gateways. PayPal may be the most popular payment gateway worldwide, but other well-known ones include WePay, Stripe, WorldPay and Dwolla. Each of these companies has their own policies, like international payments, conversion and transaction fees, geographical restrictions, etc., which means you will have to check with each to see whether they will serve your purpose.
  • Peer-to-peer payments. Usually used by small businesses or individuals due to the risk of fraud, peer-to-peer (P2P) payments—as their name implies—eschew third parties.
  • Cryptocurrencies. The popularity of Bitcoin gave way to the rise of a number of different cryptocurrencies—some of which do not suffer from the same volatility as the original cryptocurrency, making them prime ways to pay with. There are a number of companies handling cryptocurrency transactions, like BitPay or Coinbase, while a growing number of payment gateways are adding them to their list of accepted currencies due to the low transaction costs and convenience. However, this payment method may be slightly too technical for some customers.

No matter which payment method you choose, you will have to handle payment processing fees—those are the fees business owners incur when they process their customers’ payments. Only cash payments don’t incur these fees—all other payment methods will have varying amounts of fees due. The fees range from flat fees (you always pay the same percentage of the transaction, regardless of its size) to interchange fees plus pricing (where the payment processor charges you a flat amount plus a preset percentage) to tiered fees (the tiers depend on the fraud risk of the transaction—those more likely to be fraudulent will be charged higher fees).

The simplest way to minimize these fees is to accept cash. However, that is close to impossible nowadays. You can also choose a system with low fees, or factor those fees into the price of your item or service. The easiest method with which you can still accept non-cash payments, however, is to offer a number of different payment methods as some are always cheaper than others, and the costs are spread out accordingly.

As credit and debit cards are still the preferred payment option for many, they are most commonly offered by vendors. There are several ways that allow you to accept credit card payments:

  • Opening a merchant account.  Some banks offer the option of merchant accounts, which allows them to act as the intermediary between you and the credit card company, handling the technical aspects of the procedure.
  • Using a payment service provider. Some providers, like PayPal and Stripe, let you accept credit card payments without having to open a merchant account. However, they tend to charge relatively high fees, so many users choose to switch to a merchant account with a bank once they’re making more money.
  • Using an e-commerce platform. E-commerce platforms like Etsy or Ebay have built-in credit card payment processors—and many also offer free trials so you can learn what you’re dealing with before you commit.

Credit card information is sensitive, however, and you should take great care when handling it. Merchant account holders are contractually obligated to keep this information as safe as you reasonably can. The most important thing is to make sure everything, from your equipment to any intermediaries you are using, is safe and can be trusted. Any credit card processing software that seems too good to be true (in terms of fees, for example) probably is—it’s best to stick with well-known, reputable solutions. You should also make good use of encryption methods: all credit card information should be stored encrypted, as should any phone calls in which this information was disclosed. Also, never store the card security number anywhere, as the customer has to provide it every time they use the credit card in any case, so you don’t have any reason to keep it.

 

How to deal with VAT when invoicing?

VAT, or value-added tax, invoices are only issued when the sale is subject to sales tax. These are usually only necessary if both parties are registered for VAT. This is most often the case in business to business type deals. Of course, if you are not registered for VAT, you need not worry about it at all.

The biggest difference between standard invoices and VAT invoices is that the latter needs a more detailed breakdown of the costs without and with VAT, as well as the VAT rate being applied. You will also have to include your own VAT number among all the other information you’re providing about yourself as the vendor on the invoice. In other words, you will need to provide all prices (individual plus total cost) excluding VAT, the VAT rate, the total including VAT, and the total of VAT due.

 

How to deal with clients’ payment cycles when invoicing?

One of the most common reasons for late payments is that the client is paying on a different schedule compared to your own billing cycle. In short, if this does not bother you, there is no need to sync these cycles—they will usually overlap enough to evade any late fees, as those are most often applied only after a full billing cycle goes by without payment.

If you are using an automated billing system, you can enter your client’s payment date information so you know when to expect payment. If their payment date is too far from your billing date and creating problems for your own business, there is always the possibility of compromise that works for both parties.

 

What to Think About When Setting Payment Terms on invoices?

Invoice payment terms and conditions are extremely helpful, as they lay out what you expect of your customer in a clear and concise manner. There are several important things that you should include here:

  • Terms of Sale. This is where you list the prices, quantities, delivery dates, which party handles the international shipping, taxes, and duties (usually the customer), all of which keeps the process transparent and helps you get paid sooner.
  • Payment in Advance (PIA). If you require payment before you deliver the goods or services to the customer, this should be noted on the invoice.
  • Instant Payment. Sometimes referred to as Cash on Delivery (COD) or Payable on Receipt, this is when the customer must pay you immediately upon delivery—if they refuse, you simply take your item back.
  • Net 7, Net 10, Net 30. These are the terms used when you expect payment within a given number of days after it is issued. Net 7 means you expect payment within seven days, while Net 30 means you want to be paid within 30 days. 
  • Warranty Terms. This makes it clear how much responsibility you are taking once the item has left your warehouse or the service has been completed. For example, you may decide not to cover the costs of shipping damages, or you are only offering warranty for a certain amount of time. This needs to be stated clearly.
  • Return/Replacement Policy. If a customer wants to return the item or replace it, they must know whether they can do that, whether they will need to pay any shipping and/or restocking charges, and what the deadline for returns and replacements is.
  • Late Payment Policy. Make sure you clearly state how long the customer has until the payment is due and what the repercussions for non-payment are.

International Invoicing

If your business is working with international customers, it is best to use common currencies like US dollars, euros, or pounds sterling to evade any confusion. In most cases, the customer’s payment method of choice will handle the conversion from their native currency to the one you are requesting, and any conversion fees will be charged to the customer.

If your customer is not registered for VAT but you are, you will need to charge VAT on your invoice. If both of you are registered for VAT, depending on the jurisdiction, you may not be obligated to include VAT but they will have to pay it in their own country. To be completely safe, you will have to research the laws and regulations of your country.

Orders exceeding a certain amount, especially if you’re the one liable for VAT (i.e. your customer is not VAT registered), you may need to register in the destination country and charge your customers VAT at the local rate. This threshold depends on the country in question, meaning this also requires some research depending on your circumstances. However, this threshold starts in the tens of thousands and goes up to a hundred thousand euros, meaning if you’re selling small and/or cheap items, you will have nothing to worry about.

 

The Future of Invoicing

Nowadays, electronic invoicing has made the process much smoother, with a smaller paper trail, but it is still widely considered clunky and hard to follow. This is in no small part due to the sheer number of intermediaries that are needed to verify that each step of the process is done in accordance with the law and both parties’ interests. As there is no single source of information, auditing this trail can be a slow and cumbersome process—not to mention the costs that tend to add up over time.

Blockchain, the technology that powers cryptocurrencies such as Bitcoin or Ether, is considered the future of invoicing by many because it addresses many of these issues. A blockchain is decentralized and extremely secure: no party can tamper with the information once it has been stored thanks to its strong encryption, which means all parties can trust the information there. As it is, in fact, just a single database, this also removes the need for each party updating their internal information, auditing through third parties, which can save a lot of money in the long run. Once a transaction has been committed, it cannot be changed, meaning it can be audited by anyone at any point without the fear that it has been compromised.

On the other hand, blockchain is very computationally heavy, meaning it spends a lot of resources. It is also technically complex and far from user-friendly at this stage. It is expected to take a while yet until it is ready to be widely used for this purpose.