Different companies have different ways of running their finances. One of the ways that can vary is how firms send out invoices and bill clients. Some will do so through a traditional invoice, while others will do so through a simplified invoice. However, what is a simplified invoice and what are the advantages and disadvantages of using one? Why should a company use one in comparison to using an ordinary invoice, or any other invoicing technique?
In this article, we’ll look to answer those questions so that you can implement this billing technique if you think it is suitable for you and your business’s needs.
What is a simplified invoice?
A simplified invoice is an invoice which will have a far more streamlined look to it than a traditional or ordinary invoice. As a result, it will contain far less information and is quicker to read as a result. For example, it should contain your business’s name and address as well as any VAT registration that you have. For your own accounting purposes and ease, it’s recommended that your simplified invoice still contains a unique invoice number.
Additionally, it can be beneficial to include information about when the transaction between two parties happened. In doing so, you can make use of different tax rules to help improve your tax bill.
You will also need to include what the invoice is for in terms of the products or service that was sold. Those products or services need to be itemized and then any taxes that need to be paid on top of those need to be listed. Finally, the simplified invoice should culminate in the total amount.
Advantages to a simplified invoice
Probably the biggest advantage to invoicing in this way is that by simplifying the process, it also becomes far quicker. Getting invoices out of the door and onto a client’s desk is important to ensure that your business has cash coming in. Without sending invoices, you cannot be paid and as a result, you are essentially loaning your clients money until they have paid up for what they owe you. Increasing the pace of your invoices betters your chances of having a healthy cash flow, therefore.
Easier to read
In addition to being able to send out simplified invoices more quickly than traditional ones, simplified invoices are also that much easier to read. As a result, they are far easier to pay. They are therefore paid much more consistently and in a far more timely manner than other traditional ones. While traditional invoices do still get settled, the rate at which simplified invoices can be paid is better, which ultimately is better for your business.
Disadvantages to a simplified invoice
The problem with simplified invoices is that they can only really be used to a certain limit. That will vary from country to country depending on the tax limitations there, but in the UK, for example, the total value a simplified invoice can be is £250 or less. As a result, this low bill amount may seriously hinder your ability to send out simplified invoices if at all.
While some customers will prefer using simplified invoices, others won’t. In fact, some may require that they are sent a traditional or ordinary invoice for their own accounting purposes. For that reason, if you have many customers who have asked for a traditional invoice as opposed to a simplified one, it may just be more streamlined overall to only ever send out traditional invoices at all.
Simplified invoices – key takeaways
Having good invoicing practices is a vital tool you can employ to ensure you have the best chance of being paid. If that means sending out simplified invoices as they are a more streamlined way of invoicing customers, it can be highly beneficial to do so. However, ensure that your invoice still includes all the relevant information you need to make sure you have robust records in place.