All entrepreneurs, once they get their business going, need to send out invoices on a regular basis. While many use the standard invoice format, there are still many others that can be used depending on the business type.
Some of the most popular are proforma invoice and the commercial invoice, but there are still many others that can be used.
Today we’ll look at some of the most important invoices that entrepreneurs need to use and why they should be using them.
The Proforma Invoice
The proforma invoice is one of the most commonly used non-standard invoices. This is mainly because it has two usages, rather than just one.
The first usage is used to at customs to show the value of goods that are shipped internationally.
The second usage is as a quote or estimate, usually when suppliers have new customers that need to see what the final price will be before they can commit.
While the proforma can be used in the first way, it is most popular in its second form, as it can be, and is used by all business types.
One important thing to remember, however, is that the proforma invoice is essentially not a completed invoice and therefore no VAT or taxes can be included.
The Commercial Invoice
The commercial invoice can be seen as the completed form of the proforma invoice when goods are shipped internationally. It is used extensively by entrepreneurs who export goods internationally and the document is required by customs to assess the value of the shipment and apply the necessary duties and taxes.
A proforma can be used in lieu of a commercial invoice, although both are not required at the same time.
The commercial invoice should include the information that is usually included on a standard invoice, except that the following information should be added:
- the buyer’s and seller’s information
- the country where the goods were manufactured
- the appropriate Harmonized System codes, a 6-digit number that identifies the item being shipped
A credit memo is also known as a credit note, and it is sent when the supplier has made an error in the original invoice or the goods/services supplied. It can be seen as the opposite of a standard invoice as the supplier, instead of requesting payment from the customer, will send a customer the credit memo to notify about payment that the customer is owed by the supplier.
The reason for sending a credit memo could be one of the following:
- the goods or services supplied did not meet the customer’s standards
- the goods the supplier sent were damaged in transit
- the supplier ended up charging too much on the original invoice
- the supplier did not give the customer the agreed-upon discount rate
The supplier will either provide the amount in full or partially, and it can be in cash or credit for later purchases.
The Self-Billing Invoice
A self-billing invoice is more a process than it is an invoice type. In this, the customer will actually end up sending the invoice to herself, rather than the supplier sending it after the goods or services have been delivered.
This is meant to help expedite invoice processing and payment. When the customer receives the goods and services, she will not have to wait for the supplier to submit it.
If the supplier is part of an organization, she will create the invoice herself and send one copy to her AP department while the other copy will go to the supplier. If she is an entrepreneur, she will simply pay the invoice herself and send a copy to the supplier.
Although it is efficient, there are still some regulations to self-billing. In the UK, for example, both parties have to be VAT registered in order to use self-billing.
The Timesheet Invoice
The timesheet invoice is essentially the combination of a timesheet and a standard invoice. This type of invoice applies to those entrepreneurs who work on an hourly basis for their customers.
Instead of having to submit two separate documents, one being the invoice and the other a record of the time worked, the entrepreneur can choose to use the timesheet invoice.
Most of the information is similar to what would be added to a standard invoice. Except here, a few more things need to be added, such as:
- the dates and times the supplier worked each day
- the total hours worked for the invoicing period and the hourly rate
- the total amount owed for the invoicing period
With two documents being combined into one, this helps minimize the chance of documents getting lost and helps to expedite the invoice processing and payment.
The Best Invoice for Entrepreneurs
While all of these invoice types have certain benefits for entrepreneurs, they will probably not be appropriate for every entrepreneur.
You have to decide which invoice will suit you best, besides the standard invoice type, based on your business. If you do, however, you’ll see increases in the speed of invoices processed and therefore greater cash flow.