9 Invoicing Documents, and When You Should Use Them

1. Invoice

What is an invoice?

An invoice is a general statement of goods and services provided. It’s sent to the customer to show what services they’ve received, and what they owe to the seller. As a rule of thumb, items should be itemized to minimize disputes. For example, rather than listing “garden services- $100”, instead list separate items on separate lines such as “lawn mowing- $40; weeding- $25; hedge trimming- $20”, and so on. 

When should you use an invoice?

When in doubt, if a customer owes you money, use a general invoice. It’s simple and straightforward. Any changes from the norm or items not able to be listed can be amended in the description at the bottom. Send an invoice to the customer after you’ve completed the work, within 30 days.

To get started, use one of our hundreds of free invoice templates here.

2. Tax Invoice

What is a tax invoice? 

The key difference between a tax invoice and a general invoice is the tax information provided, specifically the GST (Goods and Services Tax) information. A tax invoice shows the exact amount of tax to be paid by the purchaser, and allows them to claim tax credit when submitting their taxes. 

When should you use a tax invoice?

A tax invoice is often sent to a manufacturer or another business entity who will re-use the goods they’ve purchased from the original supplier. This tax invoice will allow them to claim tax credits on the purchases.

Tax invoices are not necessary in all cases, and it can all be a bit confusing. So check out this article on the differences between invoices and tax invoices from Difference Between for a more in-depth comparison.

3. Proforma Invoice

What is a proforma invoice?

A proforma invoice is a document sent to a customer before a product is delivered. This is a crucial distinction to make. This provides the customer with an exact price that will be expected to be paid upon the delivery of a final invoice. It’s a binding agreement, so all information on the proforma invoice is final. 

Each individual item should be listed separately, along with price and as much other information as is necessary (weight, quantity, etc.).

When should you use a proforma invoice?

Often, proforma invoices are used for international transactions, so the recipient can prepare information for customs about the goods arriving in their country. 

A proforma invoice is typically used when a product is physically being shipped, and often includes extra information such as weight and transport charges. A customer may also ask for one for their records before the transaction is complete.

4. Receipt

What is a receipt?

A receipt is a document showing proof of payment from a customer. The primary purpose of a receipt is to provide proof that a contractual obligation regarding the exchange of goods or services for goods or services has been fulfilled.

When should you use a receipt?

It’s best to send each client a receipt after each time receiving payment from them. It shows official confirmation that you’ve received their payment, and allows both parties to adjust their financial records accordingly.

5. Sales Receipt

What is a sales receipt?

Polymath said it best. “A sales receipt is like entering both the invoice and payment in a single transaction.  No money is owed when the transaction is complete.” It shows that the customer already paid the amount, and the goods have already been exchanged. 

When should you use a sales receipt?

Simply put, a sales receipt is the document created when the customer is paying the full amount for a good or service on the spot, at the time of service. 

Think of buying from a florist’s shop. You show up – they sell you flowers – you give them money – they give you a receipt. That receipt is essentially a sales receipt, showing that the money was paid at the time the goods were delivered.

6. Quote

What is a quote?

A quote is a formal document explaining your prices before any services are agreed upon. At its core, it’s a price list to show the customer how much they will be paying if they decide to do business with you.

Like all of these other documents, quotes should be itemized, showing how much they will pay for each part of the service you are providing them. 

When should you use a quote?

A quote should be issued when seriously discussing services with a potential customer, or right before the services are agreed to. The quote puts all verbal agreements into writing, so there’s no dispute or confusion about price once the final invoice is received.

7. Estimate

What is an estimate?

An estimate is just that: an estimation of how much the final services will cost. It’s similar to a quote in that way, but an estimate is more informal. With an estimate, there’s more room for discussion on price for both sides. 

When should you use an estimate?

Though they’re similar to quotes, estimates should be used in more preliminary, early discussions with a potential customer. This gives each party an idea of the other’s expectations, and allows for some wiggle room on both sides. Once the price is agreed to, this can be resent as a formal quote, or even a proforma invoice. 

8. Credit Memo/Credit Note

What is a credit memo/credit note?

These documents accomplish the same thing, so they’ve been combined here. This is given to a customer after completing a payment or receiving an invoice to offer a sort of discount post-purchase, and states why the customer was given this lower price.

When should you use a credit memo or credit note?

Whenever a customer is owed money back from a transaction, you can issue them a credit memo/note. For example, if a customer returns goods to you, you should issue them a credit note with the money back, stating the reason for return. As a general rule, whenever money is returned to a customer, issue a credit note.

Additionally, they can be used in other fringe cases. Say you have a 30% off promo starting Friday, but a customer paid full price just two days prior. If they reach out to dispute, you may offer them the 30% (or another percentage) back, and issue a credit note for both parties’ records.

9. Purchase Order

What is a purchase order?

A purchase order is a document sent by a customer to a vendor in advance of a delivery. This is used as a formal request for goods/services.

When should you use a purchase order?

You can request that your customers fill out a purchase to have a formal record of their order before the transaction occurs, and to ensure that the invoice reflects the amount that was ordered. Additionally, you should also send a purchase order to any suppliers your business uses whenever you need more raw materials.

To get started on any of these documents, go to our invoice generator and get started with one of over 100 templates!

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