Invoicing in any business is that stage when the products/services have been delivered and now the payment is to be done. It is the process of generating a statement better known as an invoice that contains an itemized list of sales/services. The invoices are further classified into different types based on various factors like purpose, stage of generation, bookkeeping, international use, etc. Invoicing service like Invoicetra, a free online invoice generator in India, offers most of these services and this article gives a glance of these invoices in a little more detail. The different types of invoices used in the corporate world are listed below:-
1. Evaluated Receipt Settlement (ERS)
ERS is a method in which the receipts against goods are settled automatically without the supplier having to issue an invoice. The system at the vendor end generates an invoice based on goods receipt and purchase order. Few prerequisites assist this automation. The goods receipt must refer to a purchase order and goods receipt based invoice verification must be defined for the purchase order.
2. Standard Invoice
A standard invoice is the most basic invoice which is generated by any supplier and sent to the buyer/client as a payment request against the services rendered. It is widely used by all the freelancers and SMEs owing to its simple template. This type of invoice contains complete details of services/sales offered along with other data like client address, invoice number, tax information, date, etc.
3. Debit Memo or Debit Invoice
Also, known as debit invoice, a debit memo is like an invoice adjustment note issued by a business to its client to cater for any additional service provided. It can be used to issue ad-hoc charges or discounts or demand for additional payment against additional service provided in contrast to the invoice issued. It can also be used to correct invoice errors, such as overcharge, undercharge, and other invoicing mistakes. Functionally, they are similar to invoices but are issued to cater for the balance amount in case a company short pays or fails to pay an invoice
4. Credit Memo
A credit memo is just the opposite of a debit memo. In this case, when a buyer or client returns the goods, the seller/company issues a credit memo for the same or lower amount as mentioned in the invoice. The money is automatically refunded in the buyer’s account. It is also issued by a business in case it wants to provide the client with some discount or refunds. It can be further issued as a corrective measure to write off the account balances such as reducing the invoice balance to zero due to incorrect debit.
5. Self-billing
This is a type of invoicing in which the invoice is issued in the opposite direction i.e. the client or the buyer sends an invoice to the company/supplier along with the payment. The prerequisite is that both parties should have agreed to this arrangement of accounting. The taxation part is very important in this type of invoicing and the mutual agreement should contain all minor details to avoid conflicts at a later stage. In this case, the buyer/client should count the invoice as account payable and the seller/supplier should treat it as account receivable. This system is widely used in multiple scenarios by clients to ensure efficiency, consistency, and accountability as all rules are laid down in contracts.
6. Collective Invoicing
Also known as monthly invoicing in Japan, it refers to an invoice against several services provided to a client over a predefined invoicing period. It aims at effective, low-cost accounting with fewer account transactions. It is generally done when the client/customer is a regular one for a long period and is satisfied with monthly, fortnightly, or quarterly invoicing as decided between the two parties. It is very widely used by physicians and hospitals as part of long term supply agreements.
7. Recurring Invoicing
As the name suggests, it refers to a type of invoicing in which the invoice is automatically generated against a client for a particular set of services/goods rendered periodically. The seller/service provider sets his invoicing system on auto-pilot in such situations and the invoice is sent automatically, of course with amended dates, to the client on termination of the predetermined period. It is again an efficient method and saves a lot of time in case the invoices are being repeated for a particular customer. Nevertheless, it is very important that the service provider regularly reviews these invoices and makes amendments like price fluctuation or change in quantity, etc. as applicable.
8. Timesheet
Timesheet is nothing but the same invoice with the period of service changed to an hour instead of days. It is widely used by lawyers, consultants, freelancers, medical practitioners, and other contract employees.
Also, very common in businesses where clients are billed hourly and also by operated equipment rental companies where the equipment rental charges will be included along with timesheet based charges.
9. Statement
A statement invoice is just a summary invoice generated after a particular interval stating the pending payable amount not paid by the customer or buyer during that period. It is generated mostly at the month-end and acts as a reminder for the customer for the outstanding bill.
10. Progress Billing
It is an invoice generated for a particular portion of the project which has been completed and the funds are required by the seller/service provider to support the balance portion of the project. It is mostly based on a pre-agreement between two parties. The payment for the complete project in a way is broken into small parts and the invoice is generated on completion of those portions. The rates have to be pre-decided for each item/service and should not be much affected by market fluctuations. The taxation part should be carefully included at every stage.
11. Mixed Invoice
Mixed invoices are a combination of both credit memos and debit memos. They may contain both positive amounts and negative amounts as applicable with the total amount indicating the final amount payable or receivable. Generally used by big businesses but can be used by freelancers/SMEs in case they want to reflect some rate variations in the services provided earlier.
12. Expense Claim
It refers to a claim submitted by an employee against expenses incurred over some time or during the execution of a particular project. Very common in government services and is used widely in the corporate world whenever money-related services are rendered by employees without advance payment due to a shortage of time. Examples can be business-related travel claims, emergency purchases, hospitality charges, etc.
13. Past Due Invoice
Past due invoice is like a fine imposed on missing a due date payment. It is generated when the client passes the date of payment. The fine may range from zero to a pre-decided amount and it acts as a reminder for the customer/client. Past due invoices contain complete details of services provided for which payment is due along with the late fee as applicable.
14. Pro Forma Invoice
It is not exactly an invoice against which payment has to be done but a kind of declaration of the itemized list of goods/services being provided along with the rates. It is like a recorded commitment from the seller to the buyer/customer for providing a service. In international trade, it is used for documentation at the customs office. Also in some cases, it is used for requesting advance payment from the customer/client. It is subjected to alteration while formulating the final invoice as it acts just like an estimate. It is not recorded as an account payable or accounts receivable at either side.
15. Commercial Invoice
Again, it is not an invoice but a declaration by the customs office (international trade) giving details of both parties involved and a complete list of goods/services as may have been mentioned in the Pro-forma invoice. It has a laid down format and is used as a primary document by customs. Shipping quantity, packaging details, the weight of goods, etc. are additional details required to be included while drafting a commercial invoice.
16. Tax Invoice
In the GST(goods and service tax) era, format of tax invoice is more or less same as a standard invoice. The difference lies in the way it is issued in different countries and is mainly used for claiming GST credit. Tax invoice is issued by dealer to purchaser (not end user) whenever a sale is made clearly stating the amount of tax payable so that the purchaser can claim Input Tax Credit. If the purchaser is end user, a standard invoice may be used. Yet, there are multiple formats of tax invoice used based on respective requirements by different countries.
Conclusion
The above-mentioned invoices were earlier drafted manually but with the free online invoice generators available today, most of the invoices are now drafted and generated through a single click. In India, free online invoice generators like Invoicetra have reduced the whole odyssey of account handling by designing cloud-based solutions to meet customer requirements. Invoicetra is designed to cater to different types of invoices thus enabling users to use a single solution for multiple desideratum.