If you operate a business, there is a good chance you are going to need to issue invoices. Whether you have an online e-commerce site, or a physical bricks-and-mortar establishment, invoices are an essential part of running a business. 

Invoices are a legal requirement for any UK retail business owner registered for Value Added Tax. It doesn’t matter if you sell products or deliver services. It doesn’t make any difference if your customers are based in the UK, in the EU, or anywhere else in the world. For the small retailer or entrepreneur, invoices are inescapable. 

So, what is an invoice exactly? How does one go about writing an invoice? Are there any instances where an invoice is not required? What about invoices for special cases? What does a typical invoice look like?

It is common for new retail business owners and online entrepreneurs to have these types of questions. Knowing the answers is a crucial aspect of running a business properly. This article acts as a guide to help you stay on top of your invoicing. We’ll go through everything you need to know to understand your invoicing obligations. You’ll learn how to write an invoice and be able to view an example. 

Summary

What is an invoice?

In simple terms, an invoice is a document that serves as a demand for payment for goods or services. A typical invoice will include a detailed description of the products purchased, or the services provided to the customer. It will also list the amounts these goods or services cost, and the payment terms the customer is bound by.

Invoices are a critical bookkeeping component and are important tax documents. It is a legal requirement that any business operating in the UK issue invoices. Businesses must also keep accurate records of all invoices they have sent out or received.

Her Majesty’s Revenue and Customs (HMRC) requires that invoices are kept and submitted with tax returns for any VAT registered business. This is to show what profits you have earned on a sale and what tax – usually VAT – has been collected. 

While it is not a legal requirement for a business that is not registered for VAT to issue an invoice, they should do so if requested by a customer. 

If you do not issue invoices, then you will find it difficult to chase overdue payments from customers. Without an invoice, it is also very difficult to pursue monies owed to you via the courts. Without good invoice record keeping, you may also encounter tax problems relating to VAT or income tax.

As well as prompting customers to make payments and their importance in your tax affairs, invoices also have other uses. Many online and physical retail business owners use invoices to keep track of all sales and payments made. This can assist them in knowing how much money is coming in and going out of their business. Keeping track of invoices also helps to remind a retail business owner of any payments that are overdue. 

What is the difference between an invoice and a receipt?

It is important to make the distinction between an invoice and a receipt. An invoice is a request that a customer make payment for goods or services they have received. Whereas a receipt is a document that shows the customer has made payment for goods or services they have received. Unlike an invoice, there is no legal requirement to provide a customer with a receipt for payment. 

An invoice is also not to be confused with a quotation. A quotation – or quote as it is usually called – is an estimate of what goods or service may cost a customer. A quotation is generally sent before any goods or services have been provided. An invoice is sent afterwards. A quotation may be general, while an invoice is detailed. Additionally, a quotation places no legal burden on the customer to proceed with the transaction or to make payment.

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When do you need to write an invoice?

It is up to the retailer or business concerned when they actually invoice their customers. Deciding when to issue an invoice can be tricky. Too early, and you may seem overly demanding and rude. Too late, and your customers may forget to pay you on time or discard the invoice entirely. 

Many business owners prefer to send an invoice as soon as goods have been shipped or immediately after a service has been provided. This is often the case with physical retail outlets.

Others may choose to wait for a period of time, for example, 48 hours after an item has been shipped or a service provided. It may be the case that a business waits until a customer has confirmed that they actually received their goods before an invoice is issued. Quite a few online retailers prefer to operate in this manner. 

 A business that provides goods or services to clients on a regular ongoing basis may choose to issue monthly invoices. If you run an online wine club or provide health food or magazines to subscribers every month, you may choose this option.  

The sooner you issue an invoice, the sooner you can expect to receive payment. Payment terms are usually accepted to be 30 days after an invoice is issued but this may not always be the case. 

What do you need to include in an invoice? 

HMRC has strict regulations about what a UK retail business or service provider must put on an invoice. Failure to write an invoice properly can mean that it is not legally valid. This means your customer may be able to ignore your payment terms or just not pay you at all. It may also cause problems come tax time.

H3 What does HMRC Requires on an Invoice?

According to HMRC regulations, your invoice should include the following pieces of information:

  • The name of your company.
  • The address and contact details of your company.
  • The name (personal name or company name), address, and contact details of the customer.
  • A unique number that can be used to identify the invoice. Invoices are usually sequentially numbered in the order they are issued within the financial year. 
  • A list of all goods or services provided and a description of these, including the quantity provided.
  • The individual price of the goods or services.
  • The date on which the goods or services were provided to the customer.
  • The date on which the invoice was issued to the customer.
  • The total amount of all goods and services supplied.
  • The amount of VAT charged – if any.
  • Information on how to make payment – Bank transfer, PayPal, credit card, cash, cheque, and so on.
  • Payment terms and conditions – Any deposit amounts required, how many days a customer has to pay, any on-time discounts or any late fees that are applicable. 

How to issue an invoice for a retail store

It is important that your invoice is printed clearly so that it can be easily understood by the customer. Many small retail business owners make their own invoices using a word processor. It is also possible to download an invoice template or use an invoice generator. If your company has specific branding or a logo, this should be included on the invoice.

Make sure your invoice is obviously an invoice. Otherwise, your customers may not realise they have received a demand for payment, Have the word ‘invoice’ clearly printed at the top of the page. As well as prompting payment, this is also a HMRC legal requirement. 

There are three ways to issue a customer with an invoice. Firstly, you can give them a paper copy in person. The second method is through traditional mail. Although it is the slowest way of issuing, many businesses still prefer to send their invoices via the post. 

These days, the most common method is for a business to issue an invoice electronically via email. To guard against fraud, invoices should be issued as PDF documents that cannot be edited by the recipient. Customers may have different procedures for receiving invoices. It is a good idea to ask the customer what information they require to be stated in the subject line of the email. 

Once you have issued an invoice, you may wish to confirm that the customer has received it, Electronic invoices can often be sent to the junk mail section of an email address. This is especially likely if you are billing a customer for the first time. Some retailers like to send a follow up email or confirm with a phone call that their invoice has been received.

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Invoices for special cases 

There are some instances where an invoice will require additional information for it to be legally binding. It may be useful to take note of the following:

  • Sole traders must include their own name and the business name they trade under on their invoices. If they are trading under a business name and it has a separate address, this must be detailed. 
  • Limited company invoices need to include the complete company name just as it appears on the incorporation certificate. If any company directors are mentioned on an invoice, then a list of all directors must be provided. 
  • If your business is registered for VAT, then your invoice must state the price of any goods or services without VAT, the amount of VAT charged per item, the total amount due without VAT, and the total amount due with VAT. 

The different types of invoices 

  • Sales invoice – Any invoice your business has sent out. 
  • Purchase invoice – Any invoice your business has received.
  • VAT or tax invoice – Any invoices that include VAT.
  • Interim invoice – An invoice where the total due is spread over a series of payments.
  • Final invoice – The last invoice in a series of interim invoices.
  • Recurring invoice – An invoice that arrives at the same time and charges the same amount. 
  • Pro forma invoice – An invoice used to show the price of goods. Not a legal record of a sale.
  • Commercial invoice – Used to show customs due on imported goods.

If you run a retail business and require assistance with invoicing, take a look at the Ankorstart program from Ankorstore. At Ankorstore, our aim is to help small business owners get the best start they can!

FAQ

  • Do I have to issue an invoice when I sell a product?

Yes. It is a legal requirement that any business in the UK that is registered for VAT issues must provide an invoice. Non-VAT businesses do not legally have to issue invoices, but it is common practice to do so if a customer requests one.

  • What payment terms can I put on my invoice?

Businesses can put any payment terms they like on their invoices. If they choose not to put a payment period on the invoice, it is assumed that the payment terms will be 30 days from date of issue. 

  • What can I do about a late invoice?

Businesses in the UK have the right to charge late fees to any invoices that have not been paid on time. The amount of these fees, and if they are charged, is up to the business owner. Business owners have the right to pursue unpaid invoices via the courts. 

If you need help with opening a small retail store, you can find assistance at Ankorstore. Our Ankorstart program provides new retailers with support and guidance. Take a look today!

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