What is an Itemized Invoice?
Although invoices are legally necessary for businesses and freelancers, and they’re essential for getting paid on time, they’re often done in a hurry and lack important details. For example, a web developer who has just created a website from scratch can draft an invoice that says “website development” under the Description, Quantity 1, and then the rate and the invoice total. That’s fast, but it may not be the best way to invoice your services and you might want to consider itemized invoices instead.
What are itemized invoices?
So what is an itemized invoice? Unlike in the example above where you only mention the name of the service and its full cost, an itemized invoice provides a detailed list of the products/services you provided, item by item, along with the cost of each one. In the bill, services and descriptions can be included along with the cost.
Keeping the same example, instead of listing a general “website development” service under the description, you’ll break it down into several items and specify how much each cost. So you’ll have items such as initial consulting, logo design, website design, design implementation, customization, hosting, testing, and so on. In the case of a car repair job, the itemized invoice can include the parts that were replaced and the total of hours worked.
Itemized invoices also work when you’re doing a project on an hourly basis. All you need to do is mention your hourly rate and for how many hours you worked. Even if itemizing invoices can seem tricky for some services, it can be done. For example, publishing a blog post as a content manager might sound pretty straightforward as is, but that can be itemized into several steps such as initial research, writing, uploading it on the website, replying to comments, sharing it on social media, creating images for it, and so on.
Naturally, itemized invoices require extra organization and task management. So why go through the trouble of breaking down your job into items when you can only fill one file and the total cost? Well, itemized invoices have many advantages, and they can streamline your bookkeeping process and consolidate client relationships.
Why should you itemize invoices?
The main advantage of itemized invoices is that they break down your services into smaller items, which allows the client to understand the details of your work and how much each of them costs.
That might sound unnecessary because you know your line of work, but for clients, a general service description such as “virtual file management” can sound vague and that may lead to disputes and misunderstandings later on. Plus, if you have an audit or you need to look back on past invoices, a detailed, itemized view of what exactly you provided can clarify things.
Unfortunately, there are many cases of clients who refuse to pay invoices because they don’t fully understand the scope of the project, leading to those unpleasant “that’s not what I ordered” discussions. Itemizing your invoices clears out all misunderstandings since everything is described in detail. You also won’t have to convince clients to pay for something because that service wasn’t clearly laid out in writing.
Another understated benefit of itemized invoices is that they can help with client retention, especially when the client is experiencing cash flow issues and is considering letting you go. When a client only sees the total cost next to the service name – let’s say virtual assistant – they can be tempted to think that it’s very expensive and that they should stop using your services to save money. However, if they see all the tasks you do in a month listed in the invoice, they may realize that you are actually essential and reconsider their decision. Plus, with all the services itemized, you also have room for negotiation. For example, instead of letting you go, the client can remove just some of the tasks that are not essential at the moment.
Ultimately, even if itemized invoices require more time, they’ll make you more organized and save you from a lot of trouble for you and your business down the line.