A sales invoice is a financial document that itemizes a transaction between a buyer and a seller.
Businesses use sales invoices for two primary purposes: to track customer purchases and to provide documentation that supports business income. A sales invoice accomplishes these objectives by detailing the products or services a customer purchased, the sales cost of each item, applicable discounts, the total amount due, and payment terms.
Most businesses issue sales invoices after a customer has made a purchase. However, some companies may send an invoice before a sale, such as when selling expensive items or services with long delivery times.
Why are sales invoices important?
There are several benefits of using sales invoices both for businesses and customers.
By documenting customer purchases, businesses can track their spending and income better. When companies record their financial information correctly, they can make sound financial decisions, including budgeting and pricing products and services.
Improved cash flow
Sales invoices assist companies in keeping tabs on when customers need to make payments, enabling companies to manage expenses and ensure that the business has enough cash to cover its bills.
Using sales invoices reduces customer disputes, as they provide a clear record of their purchase — the purchased item, the date of purchase, and the payment amount.
Accurate tax filings
Sales invoices play a crucial role in the accounting process. Accurate sales invoicing is essential for businesses to maintain correct financial records and adhere to tax laws. Companies can use sales invoices to support tax filings. In many cases, businesses can submit sales invoices with their tax returns to prove that they collected the proper sales taxes from customers.
Sales invoices can help companies track inventory levels. By knowing the demand levels of their products, including the dates when demand is high, they can better manage their stock levels, order new products as needed, and avoid running out of popular items.
Reliable expense tracking
Customers can use sales invoices to keep track of their spending for personal or business purposes. The information that customers can gather from their sales invoices can be helpful when preparing tax returns, creating a budget, and managing cash flow.
A sales invoice provides customers with documentation that they can use to verify that they purchased a particular business. It serves as proof of purchase. Sales invoices can be helpful when making returns, seeking warranty coverage, or requesting a refund.
Sales invoices enable customers to keep track of their purchases from different companies. Information from sales invoices is useful when comparing prices, evaluating spending patterns, and making future purchasing decisions.
Anatomy of a sales invoice
A sales invoice has several vital parts to ensure it captures all relevant information.
The word “Invoice” or “Sales Invoice” is commonly at the top of the document.
Company’s Name, Address, and Contact Number
These details are typically in the heading towards the top of the invoice. These ensure customers know who to contact if they have questions about the invoice or the sale.
This section provides the customer’s name, address, and contact number. The person or company whose name appears here is responsible for paying the invoice.
If the company is shipping the goods to an address other than the billing address, this section should provide the recipient’s name, address, and contact number.
Most companies assign a unique number to each invoice to track sales and payments.
This should show the transaction’s date.
This should display the name of the salesperson who handled the transaction.
Some companies use purchase order numbers (P.O.s) to keep track of their outgoing invoices. If applicable, the P.O. number should appear on the invoice.
Depending on the agreed-upon terms, this is the date the customer must pay the invoice.
If the company sells multiple products, it may use item numbers to keep track of inventory. Each line item on the invoice should include the corresponding item number.
For each item, there should be a brief description. Using product descriptions can help the customer identify what they purchased.
There should be a quantity for each sold item.
This is the price for a single unit of item.
This is the quantity of each item multiplied by the unit price. Commonly, this is the last column for easy reference.
This is the sum of all the line totals.
Any applicable taxes will appear here. A sales tax is on top of the total or subtotal amount.
Shipping and Handling Charges
If there are charges for shipping and handling, they will appear here.
This shows the total amount the customer owes and has to pay.
Comments and Instructions
If there are any special instructions or additional details related to the invoice, this section should show them.
Sales invoice vs. sales receipt
Sales invoices and sales receipts acknowledge that a customer has purchased goods or services from a company. However, there are some noteworthy differences between the two financial documents.
Typically, businesses use sales invoices when the customer needs to finance their purchase or when the sale is complex and requires shipping or installation. They provide in-depth information about the purchase, including the details of the goods or services and the transaction. Customers usually have up to 30 days to pay the invoiced amount. Meanwhile, sales receipts are for simple transactions where customers have paid in full. They will include basic information about the sales, including the quantity of the purchased items, the total cost of the purchase, and the transaction date.
Sales invoices and sales receipts are valuable for record-keeping purposes and can provide information during a return or dispute. Companies can provide both documents so they have a complete record of a purchase.