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Why due diligence pays on invoicing
A good invoicing system sends a professional message and helps define your business brand as one to trust. Formalising your demand for timely payment, the right invoicing process will keep your business organised and will be particularly useful should a customer fail to pay, leading to legal proceedings.
An invoice is a record of the transaction between a buyer and a seller, so accuracy is crucial. When you sell a customer goods or services, and you’re both VAT registered, an invoice is a legal requirement. In other circumstances invoicing remains important as it provides written evidence of a transaction having taken place and, many customers simply won’t pay until an invoice is issued.
What should a standard invoice include?
A standard (non-VAT) invoice should include:
· The word ‘Invoice.’ The document should be easily recognised as an invoice, as opposed to a quote, credit note, advice note or receipt. An invoice is not the same as a receipt, which is proof of payment, not a request for payment.
· A unique invoice number that is also recorded in your files.
· Your full business name, address and contact details. Sole traders must provide their personal name and any business name, as well as an address where legal documents can be delivered if they’re using a business name. Limited companies must include the full company name as it appears on the Certificate of Incorporation (on Companies House), along with the company number. It is paramount, particularly when the customer is a limited company, that the customer name on the invoice matches the name on this certificate. These must be the same, down to the last letter, space, and character. If they differ, you are effectively (and in the eyes of the law) issuing invoices to an entirely different entity/or wrong party. This can be problematic if a customer fails to pay, and legal proceedings are set in motion.
· The full company name of the customer you’re invoicing, as it appears on the Companies House Certificate of Incorporation, or the full trading name if it’s not a limited company. The full address of the customer should also be included.
· A clear description of the transaction with goods or services itemised, line by line.
· The date that goods or services were supplied. This is not the same as the date of the invoice itself but is usually not more than 30 days beforehand. A VAT invoice must usually be within 30 days of supply or (advance) payment.
· The date the invoice was issued. As well as helping to identify the unique invoice, an invoice’s issue date defines credit duration and payment due dates, which is crucial for companies offering a credit facility. If you have agreed a payment date with customers, it must usually be within 30 days for public authorities or 60 days for business-to-business transactions. Where payment dates are not agreed or stipulated, the customer must pay within 30 days of getting your invoice or the goods or service. In some instances, invoices can be rendered due on date of delivery of the goods or service. The date the invoice was issued will also let your customer know which tax year the invoice belongs to. Additionally, if a company is late paying an invoice, they may be liable for statutory interest charges. At time of writing, statutory interest on business-to-business transactions is at 8% above the Bank of England base rate. This is the rate you can charge interest on late payments unless you’ve included a different rate of interest in your terms and conditions of sale (contractual interest).
· The money outstanding and the payment terms, for example, 30 days from receipt of the invoice. The final amount should be clearly stated and, where it is helpful, you should provide a breakdown of unit costs, delivery charges etc.
· If your business is VAT registered, the invoice should include the VAT charged and the specific company VAT number.
How do invoices affect credit accounts and personal guarantees?
When creating an invoice, it’s important to consider how its terms will interact with other contractual documents set up between your business and the customer. For example, if goods or services are purchased on credit, the invoice should usually specify the terms that apply to the transaction and provide information on the duty of the parties accordingly. Or, if a company holds a personal guarantee for an individual who has been operating as a Sole Trader, but that person then registers as a Limited Company under a different name, the personal guarantee may stop providing protection.
A solid invoice template that has been carefully considered is a great starting point. Regularly reviewing this document and having a professional with legal expertise review your invoicing process is a wise choice.
Whether you’re looking to improve your system and records, present your business more professionally, position yourself for better credit management, or protect yourself from avoidable future costs, invoicing is a key business focus.
What makes Top Service Ltd different?
As the only credit reference and debt recovery agency specific to the construction industry, we make it our mission to ensure our members receive the most up to date, credit information and company trading experiences which can make a real difference between company profit and painful write-offs.
Are you struggling to recover the money you are owed?
Top Service members have access to an exclusive combination of no collection, no fee recovery services.
“We welcome the opportunity to talk to you about any bespoke changes you would like to make to our debt recovery procedures to fit the culture you have for maintaining customer relationships, whilst addressing the need to keep cash flow as fluid as possible for your business. Please contact our collections team to talk through any individual cases or to explore how else we can support you,” Emma Miller, Company Director Top service.
Contact our helpdesk team today on 01527 518800 to discuss how Top Service can support and help you protect your business.