There are so many different legal requirements for many different types of business to adhere to that it can be difficult to know what laws apply to a company and what laws do not. Robust legal compliance can be an onerous task at first, but it’s critical to be on the right side of the law at all times to help protect yourself against any dispute or legal action.
One such place it’s crucial to be correct is with regards to invoices. So are invoices required by law? Sadly, that question is not easily answered as it will depend on where you and your business is taking place. There are some countries in the world where invoices are not legally required, and some countries where they are. However in most countries such as the US invoices can be a requirement for tracking business expenses.
However, this somewhat misses the point. While some countries legally require it, every company will likely benefit from issuing them for every product or service provided to a customer. Here, in this article, we investigate why this is as well as defining what exactly an invoice is and what it needs. In doing so, you will gain an understanding and therefore the motivation to issue invoices to customers in a timely manner.
What is an invoice?
An invoice is a formal request for payment from a company to a customer for services rendered or products provided. They will include a number of important pieces of information so that customers know how much to pay a company, where to pay it, and what they are paying for. There is no set template for an invoice and they can be issued in an electronic form or on paper.
Why are invoices important?
Invoices are important for a couple of reasons. Firstly, when they are issued in a timely manner, they vastly improve a company’s cash flow. By issuing invoices, you’re requesting payment from customers who then have the information needed to pay the final amount. Without issuing invoices, customers cannot pay you which materially impacts your company’s future growth. Without having the funds from customer payments, a company’s cash flow is diminished and therefore its ability to take advantage of opportunities with cash on account is reduced.
Secondly, invoices are also important as a record. They provide good documentation in the instance of any dispute that may arise between a customer and a company. As a result, they can give a company with a form of protection should any issues arise. Those issues can greatly vary, but without an invoice, there’s no record that you have requested payment from a customer for certain products or services.
What an invoice needs
For your invoice to be effective, it will require a certain amount of information on it — regardless of country or jurisdiction. Bearing that in mind, try to include the following information when issuing invoices:
- Invoice number
- Company address
- Client address
- Itemized billing for each service or product provided
- Tax owed on each service or product provided
- Date of purchase
- Date of invoice
- Payment account details
- Tax details if applicable
- Final amount owed
Including all this information provides customers with the details they need to pay you, but importantly also records what you have sold them and when.
While knowing whether an invoice is legally required in the country you’re doing business is key to staying on the right side of the law. The bottom line is that it’s just good business practice to issue invoices for any products and services. They’re a good form of legal protection for you in the case of disputes, plus they serve as a good record for what business you have conducted in the past. Having robust invoicing procedures in place also significantly improves your company’s efficiencies and productivity. By asking for payment, you can get paid and start to make healthy profit margins. Issuing invoices therefore underpins the success of a business — legal requirement or not.