An invoice is a document that states the products or services rendered and charges that will occur. See Wikipedia for a more literate answer.
In this blog post, we will go through the invoicing needs of a small or mid-sized business.
What is the difference between an invoice and a bill?
Invoice is usually created by the provider of services to ask payment for services rendered. A bill is a customers request for an immediate payment (such as a bill at a restaurant).
Three ways to create an invoice?
So you've just started your company and you need to get some money in for services rendered. You can create an invoice with word or excel. The Internet is full of handy templates. This will serve you well if you only need to make a few invoices per year. This gives you zero automation, no linking to book keeping and no mechanics for money transfer. Still, there is a place for such an invoicing procedure.If you use any sort of bookkeeping application (such as Xero, Freshbooks or Quickbooks) you already have a built-in tool for creating one-off invoices easily with the benefit of bookkeeping integration and mechanics for money transfers.The third option is to have a purpose built invoicing tool (such as Bill Talent, Harvest) to automate the creation of invoices. These tools usually integrate with bookkeeping applications for an automated workflow. In an organization with more employees, customers or complex invoicing needs, this sort of automation will bring great benefits.
What are the usual bases for invoicing?
The most common bases for invoicing are:
- Recurring (contract based)
- Subscription (self-service)
- One time quote (contract based)
- Small items
- Part of the profit (eg. consulting and tax lawyers)
Companies need to have an established seller-customer or provider-client relationship. They can have a written contract or just a verbal agreement.
Note that, usually you need automation even though you don’t send that many invoices. On many occasion, the amount of data that is needed for one invoice might be quite complex. For a big project, the invoice might state “25 000 USD – Building project”. But behind that invoice, there might be a hundred hours of labor from several employees.
The basic process for invoicing
Here is what happens inside a company from production to invoicing:
- A service or a product is sold
- Information about the sale is sent to the person in charge of invoicing
- Details for the invoice are typed in
- Invoice is checked (usually by a higher ranking person)
- Invoice is sent
- Customer pays the invoice
- Invoice is marked payed
- Invoice is added to bookkeeping for fiscal reporting
Most of the time, steps from 2-8 can be partially or fully automated.
Why you should automate your invoicing process?
Small businesses haven’t had the chance or the push to automate. Processes haven’t been thought through. Even larger and older organizations might have bad processes and tools.
Bad processes typical have these issues:
- Information is re-typed from a source (Excel, e-mail, paper etc.) to another program
- Collecting data seems like a manual ordeal
- Reporting is time-consuming
With the correct invoicing automation solution and better processes, these tedious tasks can be automated. Automation will have great benefits:
- Save up to 90% time spent
- Make less mistakes and typos
- Get quicker cash flow
- Get better reporting for free
All these benefits allow you and your team to focus on more productive things. Automation should be a no brainer!
This blog post is a part of our Benefits of invoice automation -blog series. Read more about How to automate your recurring invoicing process.