November 28, 2021
Invoice Types Freelancers and Small Businesses should know about

10 Invoice Types Freelancers & Small Businesses Should Know About

Growing a small business is a tough adjustment if you are unfamiliar with invoices. Most people in salaried positions know precisely when they will be paid. Small business owners, freelancers, and solopreneurs are different. You only get paid if you consistently send invoices and get them paid on a timely basis.

To maximize your income and make sure you are well compensated, it is crucial to understand the different types of invoices available. Once you understand these ten types of invoices, you can choose the proper invoice for your project to maximize your income and reduce your risk.

1. Standard Invoice  

What It Is

A standard invoice is an essential tool that every small business owner uses. The invoice will describe the product or service provided, the price, tax, and payment terms.

When To Use It

A standard invoice is a good choice when you have a clear and straightforward scope of work.

Who Should Use It

A standard invoice is probably the most popular invoice type available. The majority of businesses, large and small, use this type of business to cover simple transactions.

Advantages To This Invoice

The advantages of a standard invoice include simplicity, familiarity, and ease of preparation. Most of your clients have probably seen and paid standard invoices. Therefore, it will be easy to get this kind of invoice paid quickly in most cases.

You can send a standard invoice using PeachPay in less than a minute. As you add more clients, PeachPay lets you send unlimited invoices to unlimited clients. In addition, you can receive international payments, receive funds directly into your bank account and send invoice payment reminders.

2. Credit Invoice

What It Is

A credit invoice is commonly used in ongoing business relationships. For example, an accountant might bill a client $10,000 for tax services based on certain assumptions. At the end of the project, the accountant may find that the project was much less complex than expected. In that case, issuing a credit invoice for $1000 could be done. This credit can then be applied to reduce the future fees paid by that client.

When To Use It

A credit invoice is helpful in a few situations. You can use it to report a refund for a customer who has returned a product. You can also use it to provide a credit amount to a client in a billing error.

Who Should Use It

Any business owner that deals with refund requests should be familiar with sending a credit invoice.

Advantages To This Invoice

Sending a credit invoice is beneficial for a few reasons. First, it helps you easily keep track of refunds so you can manage your business accounting effectively. Second, credit invoices also help your customers verify the amount and nature of the credit on their account and the issued refunds. It is unwise to issue a refund payment to a customer without documenting that payment with a credit invoice or a similar document.

3. Debit Invoice

What It Is

A debit invoice is the exact opposite of a credit invoice. A debit invoice increases the amount that a customer must pay.

When To Use It

A debit invoice may be used to correct an invoice. For example, you might have accidentally sent an invoice for $100 when the amount owing was $1000. In that case, you might send a debit invoice for $900.

Who Should Use It

A debit invoice is helpful in most businesses because you or your staff may occasionally make mistakes on invoices.

Advantages To This Invoice

A debit invoice is helpful in a few business situations. You can use a debit invoice to correct billing errors. Also, a debit invoice is helpful in circumstances a customer has requested additional services or products. For example, a client might ask for additional customization to be performed on a graphic design. In that case, a debit invoice could be used to cover the additional fees. When sending a debit invoice, make sure you include a clear explanation for the additional charges.

4. Mixed Invoice

What It Is

A mixed invoice is a relatively complex invoice type that combines debit and credit line items all in a single invoice.

When To Use It

A mixed invoice is suitable for more complex business relationships or when you are aimed to minimize the number of invoices sent to a client.

Who Should Use It

A mixed invoice is helpful to use in situations when you want to send a single consolidated invoice to a customer rather than multiple invoices.

Advantages To This Invoice

A mixed invoice can help you simplify accounting for a customer. You can send a single invoice with line 1 showing your standard charge, line item 2 with a debit (e.g., “two hours of additional consulting”), and item 3 (e.g., credit for paying the last invoice ahead of schedule). When sending a mixed invoice, take the time to verify each line item is accurate before sending it.

5. Proforma Invoice

What It Is

A proforma invoice is best seen as an estimate of the expected charges a customer will have to pay.

When To Use It

Send a proforma invoice if a customer requests a specific invoice for a project. For example, a contractor might send a proforma invoice before starting a project. If the project ends up becoming more complex, additional invoices may be needed.

Who Should Use It

A proforma invoice is somewhat less common than some of the other invoice types covered above. A proforma invoice is helpful if your business does not use proposals or quotes to communicate pricing to a customer.

Advantages To This Invoice

A proforma invoice is a helpful tool to communicate pricing information to a client. Clients can better understand what the final invoice will look like when you clarify the specific elements of your price and deliverables up front.

6. Interim Invoice

What It Is

An interim invoice is used in larger projects to spread out payments as progress is made.

When To Use It

Using an interim invoice is wise on longer projects. For example, a consultant might use monthly interim invoices throughout a three-month project. In this scenario, an invoice could be sent when each stage of the project is finished.  

Who Should Use It

An interim invoice should be used on projects longer than 30 days. Before using an interim invoice, make sure it aligns with your contract. A customer should understand when and how interim invoices will be issued.

Advantages To This Invoice

Using an interim invoice is valuable because it helps a small business to earn revenue while delivering a large project. It is also beneficial to the client because this invoice spreads out payments over a more extended period. An interim invoice should be either time-based (e.g., send an interim invoice every 30 days throughout a 90-day project) or milestone-based (e.g., send an interim invoice when a significant project phase has been completed).

7. Final Invoice

What It Is

A final invoice is sent when a major project is completed. It can also be used when a customer or a small business has decided to end a relationship.

When To Use It

Using the phrase “final invoice” in your communication implies the end of a working relationship. Therefore, this type of invoice should be sent when you intend to end a business relationship.

Who Should Use It

A small business can send a final invoice to confirm the end of a customer relationship.

Advantages To This Invoice

The main advantage of a final invoice is that you have an opportunity to bring a customer relationship to a conclusion. A final invoice is your opportunity to reconcile any outstanding credits, debits, and other adjustments that a customer has with your company.

8. Collective Invoice

What It Is

A collective invoice is sometimes to consolidate multiple bills and customer accounts into a single hefty invoice.

When To Use It

A collective invoice may be relevant to large companies. It is a relatively uncommon type of invoice type. Use a collective invoice only if a customer requests it.  

Who Should Use It

A small business should use a collective invoice if it makes sense to save time. For example, a small business might work with several departments of a Fortune 500 corporation. In that case, it might be advantageous to send a single collective invoice to the corporation’s accounts payable department instead of multiple invoices.

Advantages To This Invoice

A collective invoice can help to reduce the administrative effort involved in managing invoices. Instead of chasing multiple invoices for payment with a customer, you can focus your follow-up efforts on a single customer.

9. Recurring Invoice

What It Is

A recurring invoice involves a set fee charged to a customer on a set schedule, such as a monthly charge.

When To Use It

A recurring invoice is relevant if you sell products or services on a subscription basis.

Who Should Use It

Several kinds of businesses can use a recurring invoice. For example, a technology might use a recurring invoice to bill for access to their software as a service (SaaS) product. In addition, a solopreneur could use a recurring invoice to bill a client on recurring coaching or consulting relationships.

Advantages To This Invoice

A recurring invoice is beneficial for situations where you are billing the same amount over and over again. In this case, manually creating the same invoice does not make sense. You can create recurring invoices and send them to clients through PeachPay.

10. Timesheet Invoice

What It Is

A timesheet invoice provides a bill to clients based on hourly rates and hours worked. It is commonly used by service-based businesses such as law firms, accounting firms, and consultants.

When To Use It

A timesheet invoice should be used if your contract requires it or is generally expected in your industry. For instance, the legal profession has a long tradition of charging fees using a billable hour model.

Who Should Use It

A timesheet invoice should be used if you have agreed to use an hourly rate or another time-based billing method (e.g. a weekly rate) with the client.

Advantages To This Invoice

The advantage of a timesheet invoice is that the small business owner can bill for every hour worked on the project. However, an unexpectedly large timesheet invoice may cause a negative impression on clients. It is wise to provide detailed descriptions on timesheet invoices so that your clients know exactly what they are being billed for.

The Only Invoice Tool You Need

You can send all of these invoices to clients using PeachPay. Even better, you can receive payments directly into your bank account. More than 14,000 freelancers, consultants, and small business owners trust PeachPay. Get started for free today!

 

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