Knowing how to invoice a client is crucial for self-employed individuals, be it contractors or sole traders. From writing an invoice with the right details to understanding the obligations on payment that both you and your clients share, you should be aware of the ins and outs of invoices in order to make the most of them.
As contractor accountants, we know a thing or two about invoices, so we’re taking an in-depth look into them in this article.
Why You Need to Send Invoices
Once you have your business set up and you’ve sold products or services to your clients, you have to invoice them to receive payment.
But this process doesn’t have to be complicated. If you’re juggling several clients at once and working on a range of projects, you’ll have to send out several invoices a month or even weekly. Knowing how to write them correctly is important, then, especially as certain details will have to be included no matter what.
For instance, if you and your clients are VAT-registered, you have to send VAT invoices, which include more information than ‘normal’ invoices.
When you invoice your client or agency, you’re letting them know when you expect to get paid and how much you’re owed. This will help to prevent late payments as well, which is something that self-employed individuals can struggle with.
What Are VAT Invoices?
These types of invoices are only applicable to businesses who are VAT-registered, as mentioned – you have to register if your VAT taxable turnover is over £85,000.
You’ll have to keep and issue valid invoices that can be paper or electronic. You must also keep copies of sales invoices even if you cancel them or create one by mistake, and it’s vital that you keep invoices for items that you buy as well.
According to HMRC, VAT invoices have to be issued within 30 days of the date of supply (or the date where a transaction takes place for VAT purposes) or of the date of payment if you receive payment in advance.
Are Invoices Legally Binding?
One thing that you may want to know is whether invoices are legally binding.
First of all, if you’re selling a product or service, you have the legal obligation to invoice your client and, while there isn’t a set template you can use to prepare your invoices, there are a few things you must include to make it a legally binding document, such as adding the word ‘invoice’ and having an invoice number.
Invoices can help to protect your cash flow, to keep records of your transactions and to fulfil tax obligations, so they’re a key component of any freelancer or contractor’s arsenal.
What if Your Clients Don’t Pay?
You have the right to be paid for any products or services provides, and you can set your own terms, from discounts to upfront payments.
Unless you’ve specified otherwise, your client has to pay you within 30 days or receiving your invoice, and you can use a statutory demand to formally request payment if you’re owed money.
This demand can be made from both an individual and a company, and you don’t need a lawyer to make it. However, if your client’s debt is over 6 years old, you can’t make a statutory demand, but you should seek professional advice to figure out how to proceed.
After receiving a statutory demand, your client has 21 days to pay the money owed or to reach a payment agreement. You can charge interest for late payments as well.
There are other ways to make sure that you receive the money you’re owed.
For example, if you want to continue working with a late-paying client because they’re usually on time with their payments, then you can try chasing the invoice after the deadline has come and gone.
This casual reminder may be enough but, if you don’t get the results you’re looking for, you can then send a statutory demand.
You should also only work with clients who have a good reputation for paying on time. While it can be difficult to find this out, make sure you thoroughly research them before committing to a contract. Check out their reviews and testimonials and go through their social media, for instance.
We’ve written a guide on how you can deal with late payments, so be sure to give it a read if you’re struggling with your payments.
What to Include in an Invoice?
Tools like our FreeAgent accounting software can make your life a thousand times easier, as you can use it to create professional invoices to send to your clients – you can create new documents or make copies of existing invoices, depending on what you need.
But do you know what you need to include in your invoice?
Certain information must always be included in the invoices you send:
The word ‘invoice’ at the top
An identification number for the invoice
Your company name, address and contact information
A description of what you’re charging for
The date the products or services were provided
The invoice date
The amount you’re owed for your goods or services
VAT if applicable (if you need to include VAT but don’t, you risk being fined)
The amount being charged
Contact details of the client
If You’re a Sole Trader
As sole trader accountants, we know a couple of things are different if you’re not operating through your very own company. If this is your case, you have to include your full name and any business name you’re using, as well as an address where legal documents can be delivered to (if you have a business name).
If You’re a Limited Company
On the other hand, if you’re operating through a limited company, you have to include the full company name as it appears on the incorporation certificate; if you add the names of directors to the invoices, you have to include them all. It’s also crucial to add the company registration number.
We’re limited company accountants, so we can help; let us know if you require any assistance with invoices or other admin work.
How to Prepare an Invoice
If you’re not using an accounting or bookkeeping software like FreeAgent, you will have to create your own invoices.
The first step is to ensure that it looks professional. From using Excel to finding a customisable template online, there are endless options to create invoices. Don’t forget to use fonts and styles that match your branding, and you should also include your logo and other distinctive elements, like the colours you use in your business.
Not only is an invoice identification number mandatory, but it will also help you to keep your documents in order and to make sure that you’re not creating duplicates. A sequence of numbers is usually the preferred choice, but it’s up to you. You can mix it with letters as well, to indicate which client the invoice belongs to.
When it comes to describing the products or services that you’re invoicing for, you should detail them in a way that makes it clear what it is that your clients are paying for. You don’t have to write a long text but just ensure that the descriptions are easy to understand and have all the necessary details.
If the descriptions are not clear, your clients are likely to ask you to explain them, which means you will end up receiving your payment late. Take into account the quantities and prices of everything as well.
When it comes to prices, it’s not only important that you include the individual costs of products and services, but you need to add in the total amount owed as well. Mention any potential discounts in the invoice too and take them out of the final price.
Payment terms are another crucial element of your invoices. While this is something that you need to agree when signing the contract with the client, you should still include it in the invoice so that there is no confusion as to what the terms are. Mention when you expect to receive payment and, of course, include the way your client can pay you.
If you want to receive the payment directly to your bank account, include those details; likewise if you prefer them to pay you through a third party like PayPal.
Should You Request Payment Upfront?
This will depend on your situation and the type of work you’re doing – as well as the clients you’re working with. If you’ve never worked with a client before and don’t know whether they are reliable when it comes to payment, you want to be one hundred per cent sure that you receive money for your products or services on time.
So, while sometimes it may not always be appropriate to ask for payment upfront, there are circumstances when this is the right course of action. Many contractors and freelancers prefer their clients to pay half the project fee upfront before they even start work, so that they’re protected in case something happens.
Also, upfront payments showcase commitment from your client and indicate that you can, indeed, book time to work on their project; some clients can cancel after contractors have set aside time for the gigs, so this is reassuring.
They can then pay you after you complete the work. Most people are fine with this type of agreement, so it’s unlikely you’ll get a lot of push back on it.
In addition to this, if you are still doing work for clients who often pay late, you should definitely request payment upfront to make sure that you don’t have to worry about chasing overdue invoices.
Gorilla Accounting Can Help
Having a dedicated accountant to handle the financial details of your business can be a huge help, especially when you’re busy and just want to get on with work. You don’t have to spend hours trying to learn how to send an invoice or end up forgetting to chase a late payment – FreeAgent can help you out with all of these.
And our specialist team of accountants is also at your disposal to answer any questions you may have. If you’re a client, you only have to contact us before 3pm and we’ll guarantee a same-day reply. This is incredibly useful for those who need an answer to an urgent question that simply can’t wait.
Because we’ve been providing accounting for contractors have a deep understanding of several industries and markets as well, so we’re able to help contractors and freelancers in a wide range of sectors, from IT to property.
Please don’t hesitate to get in touch today on 0330 024 0406 and we’ll be happy to discuss your accounting needs with you. In the meantime, why not check out our contractor tax calculator to figure out how much you’re taking home?