Small Business Advice

How to make an effective invoice

Sending out professional invoices simplifies your billing process and allows you to get paid quicker. We explain how to make effective invoices that can be paid on time.

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Only 63% of invoices are paid on time. The rest either take more than 30 days or are not paid at all. Part of the reason is that some business owners use invoices that are not effective enough. This is a huge deal, especially for small businesses, because their cash flow and survival depend on invoices being paid.

It’s even a bigger deal now that businesses need money to survive the COVID-19 pandemic. Besides, invoices are essential to the record keeping process. They’ll help you calculate sales, income and tax. You may also need them when preparing accounting statements.

Combine these factors and you’ll see why it’s important for every business owner to know how to make an invoice. Not just any invoice, but an effective invoice.

What Exactly Is an Invoice?

An invoice is a bill that you send to clients and customers, requesting them to pay for goods delivered or services rendered. Amongst other information, an invoice will detail the items delivered and your terms of payment.

Is an invoice a receipt?

No. While an invoice is a request for payment, a receipt is proof of payment for goods or services. Thus, an invoice is issued before payment whereas a receipt is issued after payment.

What's the purpose of an invoice?

Invoices allow you to bill clients and customers for goods delivered or services rendered. You use an invoice as a polite and professional way to notify your client of the amount owed for your goods or services. More to that, an invoice may help you track the income you make from doing business.

Although you’re not legally required to send out physical invoices, it’s always wise to do so. They will help when you need to track revenues, file tax, prepare accounting statements and so on. Just as important, invoices are an excellent way of keeping written records of your business transactions.

Things To Include in an Invoice

Compared to other countries, invoice requirements in the U.S. are pretty relaxed. There are no legal or regulatory formats to follow. Similarly, there’s no specific list of items to include in an invoice. The same can’t be said for countries like the U.K. requires that certain information appears on an invoice. For example, if you’re VAT registered, then you must use a VAT invoice. Such an invoice contains more information than an ordinary invoice.

That info includes your VAT registration number, the tax point, invoice date, VAT rate, and total VAT charged. Total VAT only applies if all items are charged the same VAT. If items are charged different VAT rates, then you must indicate the rate for each item.

The U.S. doesn’t have VAT, which means that there are no VAT-specific invoices. However, each state is authorized to create its own taxation system. And that means there may be some state (and federal) laws to look up before creating an invoice format.

Furthermore, if your business is located abroad and you’re writing an invoice to a US-based client, then you’re required to prepare and submit a W-9 tax form to the client.

The IRS doesn’t require you to include your business identification number on your invoices. It’s an option that you can take or forego. Similarly, your invoices don’t necessarily need to have their own unique numbers. You can choose any numbering system that you like.

With that said, here’s a list of things to include in a professional invoice for a small business:

  • Professional invoice format

Microsoft Word offers a great template for free. But if you would rather work with a different software, then you may want to try Square or Wave. Both are free invoicing apps for small businesses.

  • Clear label

Ensure that your customers and clients know that the document you’re sending is an invoice. You can do so by simply adding the word “invoice” at the top.

  • Unique identification number

This will act as a reference for your records. It will also ensure that you don’t create duplicate invoices. You could use numbers in ascending order or a combination of letters and numbers to identify specific clients.

  • Company names

Include your company name as well as the name of the company you’re invoicing. In case you’re dealing with an individual, then you’ll want to capture their name here.

  • Company information

Add helpful details about your company. This may include your address, contact details, location etc. If your company is a limited liability company (LLC) and you choose to include the names of directors on an invoice, then you’ll have to put the names of all directors.

While at it, remember to include your client’s details. Alongside their company name, add their address and at least one contact so that your invoice reaches the intended recipient.

  • Itemized list of goods or services rendered

You’re essentially informing the client why you’re billing them. List the goods or services with brief yet concise descriptions.

  • Dates

Include the date when you delivered the goods or services. You can put this beside each good/service. Additionally, add the date when you created the invoice. This can come at the top or toward the bottom of the invoice.

  • Total amount

Each good or service must have its cost. In addition to that, sum up the total cost and jot it down as well. Remember to indicate any discounts and taxes, if they apply.

  • Payment terms

Chances are you agreed with the client beforehand when they need to settle the payment. Remind them of that by including it in the invoice. It could be immediately, after two weeks or after a month. Whatever the case, write it on the invoice.

Also, tell the client how they should pay you. If it’s through a bank account, then write it down clearly. If you prefer other means of payment, then specify them.

How To Make an Invoice for Free with Square

Now that you know what to include in an invoice, you’re probably wondering: how do I make my own invoice?

Well, Square has a solution for how to make an invoice for free. Most small businesses are already strapped for cash because of the coronavirus pandemic. The last thing you need is an invoicing software that will charge you.

Luckily, Square offers free unlimited invoices for small businesses. Here’s how to use the Square invoices app:

PS: don’t have a Square account? Sign up for a Nearside checking account and get Square’s free invoicing services as well as free processing on $3,000 of credit card transactions from Square.

  • On your main dashboard, click on the “Invoices” tab
  • Head over to “Send an Invoice”
  • Input invoice details, customer information, and message
  • Specify the payment information and set your preferred send time
  • Add an itemized list of goods or services delivered
  • Set discounts if they’re applicable
  • Review the information
  • Hit send.

Combine this with the Nearside checking account for small businesses and freelancers, and you have a straightforward way of billing clients and managing your finances. Nearside doesn’t charge NSF fees on small business and freelance accounts.

How To Make an Invoice in Word

Microsoft Word offers another alternative for how to make an invoice for free. It has professional-looking yet easy-to-use invoice templates. If you know your way around this program, then it’s an excellent place to start. Here’s a step-by-step guide on how to make an invoice in Word:

  • Open Microsoft Word and go to File > New Form Template
  • Enter “invoice” in the search bar that appears at the top right and hit enter
  • From the list, pick an invoice template that you would like to use
  • Enter your business information and logo in the header section
  • Enter relevant information in other fields, including client’s details, invoice number, dates, and payment terms
  • Itemize the goods or services rendered along with their descriptions and prices
  • Sum up the total amount and include taxes and discounts where necessary
  • In the footer section, detail any notes that you may need to add.


If you’re looking for a good checking account, Nearside has an excellent option for small businesses and freelancers. The Nearside checking account has no monthly fees and you get up to 2.2% universal cashback rewards in 2020. Sign up today and take advantage of Nearside’s partnership with Square for free invoicing and up to $3,000 of free credit card transactions.

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