There are different types of invoices for businesses depending on when and why you issue them. Each type of invoice has a different name, purpose and requirements, but of course there are some overlaps. It gets confusing out there – especially when taxes are involved!
The most common types of invoices for your business are:
- Full invoice
- Simplified invoice
- Modified invoice
- Sales invoice
- Debit invoice
- Credit invoice
- Final invoice
- Recurring invoices
In our experience providing automatic invoicing tools to online businesses, it’s helpful to understand which specific invoices your business needs to comply with local and international laws. It can also be helpful to use recurring invoices, if you have a SaaS or subscription business, to minimize the manual effort and admin of billing your customers.
So that’s what this article is for – to explain the different types of invoices, answer all your questions, and make a few expert recommendations along the way. Let’s get started!
1. Full invoice
The full invoice is the classic invoice -- and the most comprehensive. It includes almost every detail you can think of about a sale. Because of that, it requires quite a few data points from your customers, and so for them, the full invoice is pretty full-on.
Nevertheless, full invoices are necessary. As a legal tax document, it allows you to stay compliant in your home country and/or the country of your customer.
When to use a full invoice
You could use a full invoice whenever you want to, since it will always cover your bases. But you don’t always have to. Full invoices are only required when the amount of the transaction is a larger sum, over a certain sales threshold. Receipt thresholds depend on each country.
In fact, it’s wise to avoid the full invoice when you don’t need it. They can be a hassle for your customer, plus cause friction at checkout, when the customer needs to enter so many fields of information before purchase. This is called conversion friction, and it hurts your customer conversion rate. Would-be buyers just opt out at the last moment, because they don’t want to do the tedious task of filling in a form.
What to include in a full invoice
Since invoice requirements can vary from country to country, the easiest option may be to create a template invoice that includes all the possible information.
A full invoice should always include the following pieces of information:
- Your business name and address
- The name and address of the company or customer
- A unique invoice reference number that can only refer to the invoice in question
- A date, usually the date the invoice was created (or “raised,” in accounting speak!)
- A list of the products and/or services you’ve provided. (List these line by line, with a quantity and separate cost for each)
- The amount of sales tax (also known as VAT or GST) for each item -- or the total tax amount for the whole invoice, if every item is subject to the same rate
- The total amount of the invoice
- The payment terms, such as how long a customer has to pay, the channel of payment, etc.
If you want to create a template that could suffice for almost all countries, then it’s a good idea to also include:
- Your VAT number (if you are VAT-registered)
- Your company number (if you are a registered company)
A full invoice doubles as a tax receipt
Now this is important! This could get your money back.
You can probably guess from the name, but a tax receipt is one you use when you file your tax returns, if you want to claim any deductions for the purchase.
What purchases are valid for a deduction? Charitable donations, goods and services that help you run your business, and certain other business “expenses.” The ins-and-outs of tax deductions will depend on where you file, so be sure to check with that local tax authority to make sure you maximize your returns.
On that note, the tax receipts must be compliant with the local tax authorities as well. For example, if you’re selling to customers in the EU, you must issue VAT invoices and tax receipts, which have their own quirks and requirements. Usually a full invoice will cover everything. But while you’re checking with your tax authority to see what you can get money back for, you should also double-check what information you need to supply for it!
If you’re curious to learn more about sales tax for online businesses, check out our guide on digital taxes around the world.
2. Simplified invoice
What is the difference between a full invoice and a simplified invoice?
A simplified invoice includes some of the information in a full invoice but not all. Instead of listing out all the required tax details, the simplified invoice just states the total amount due (with tax included). If your business has an average sale price on the lower end of the spectrum, you should listen up.
When to use a simplified invoice
You can only use simplified invoices for smaller transactions, for those sales that do not pass the sales threshold. As mentioned above, the sales receipt thresholds vary from place to place, but for example the British tax authorities allow for simplified invoices for invoices totalling less than £250 (incl VAT). In Germany, the threshold is lower at 150€.
An obvious benefit of the simplified invoice is that it requires less effort from your customer. The buyer doesn’t need to fork over so much information or spend extra time filling out check-out forms. The final product is also easier to read.
What to include in a simplified invoice
- A unique invoice number
- The date of the sale
- Your business name and address
- Your VAT number (only if you have one)
- A description of the goods or services
- Rate of sales tax charged per item
- List separately the subtotal, the sales tax, and the full total
What you don’t need to include in a simplified invoice
- The customer's name, trading name, or address
- The quantity of each item sold
- The price of each item sold
- The rate of discount per each item sold
Note if you sell B2B: Your business customers will likely come back to you and ask for a full invoice. Why? If a customer buys your product in order to better their business, it’s a business expense. So they’ll want to reclaim taxes on the purchase. They can’t use the simplified invoice to claim a business expense. Instead, you must provide a full invoice that includes their billing data. This can be a bit of a hassle, tending to customer requests that come back around for an upgraded invoice – especially when tax return deadlines are approaching!. But if you use an automatic invoicing and tax compliance software like Quaderno, simplified invoices can be automatically converted to full invoices. The data is already saved, and the customer can retrieve an upgraded invoice on their own time.
3. Modified invoice
The modified invoice is used in rare cases, and has some similarities and differences with the full and simplified invoices. Use a modified invoice when:
- The total amount charged is above the threshold for simplified invoices. So, above £250 in the UK or 150€ in Germany, etc.
- And when you want to list prices as tax inclusive.The modified invoice includes all of the same information that’s on a full invoice, but the product prices and total amounts should be inclusive of VAT.
Note: Your customer must agree to a modified invoice that shows tax-inclusive amounts!
4. Sales invoice
A sales invoice is the official request for payment that you send a customer. A sales invoice could come in any of the above versions: full, simplified or modified. So it could contain detailed information about the sale, such as item descriptions, quantities, prices, total amount due, payment terms, and any applicable taxes This is the record used in accounting and bookkeeping.
What is the difference between a sales invoice and a sales receipt?
While a sales invoice is the request for payment, a sales receipt acknowledges that a payment has been received. You send the sales receipt to the customer after you’ve been paid, and it serves as proof of the completed transaction.
5. Debit invoice
Notice about the request of money
A debit invoice is a receipt that requests the return of money. As you might guess, the use case for this receipt is much more specific. Also referred to as debit notes, they usually appear in B2B transactions, and only when there’s a debt obligation on some side. Debit notes are, more than anything, an accounting formality. They chart money for “accounts receivable” and “accounts payable.”
When a seller issues a debit invoice
The seller may send a debit note to inform a buyer of upcoming payments that haven’t been officially invoiced yet. Payment is only expected when a customer has received a proper invoice, so in effect, this debit note works as a strong FYI. It’s definitely not a required document, but you could use it depending on your recordkeeping practices. (And just to make sure you get paid!)
When a buyer issues a debit invoice
A buyer usually sends a debit note when they’re returning goods that were sent on credit. The point? To request a refund, or that their credit account is updated to reflect the return of value.
These debit notes are generally structured like a regular invoice. But in addition, the buyer will put the reasons why they’re returning the goods. This puts the grounds for refund in writing, in an official format -- which we know the accounting world loves!
6. Credit invoice
Notice about the return of money
A cousin to the debit invoice, this invoice confirms that the money has indeed been returned. Also referred to as a credit note, the credit invoice is a letter sent by the supplier to the customer to let them know that, well, they’ve received some credit. Usually credit invoices are issued because of an error in the original invoice or a refund request, but there are other reasons. Those are up to you, the business owner!
One thing is clear: When a customer has paid an invoice, and you want to give back the full payment or a partial amount, you must issue a credit note.
Credit notes are in the best interest of your business, too. Since they officially record the return of money, they are legal proof that you don’t need to pay taxes on that sale. Staying on top of credit notes can help you avoid paying too much VAT (or other sales tax) when filing comes around.
What to include in a credit invoice
You should include all of the same information that’s on a full invoice – except here you put a “credit note” reference number, rather than an invoice reference number. Otherwise, you can structure it exactly the same way.
7. Final invoice
A final invoice is simply the finalized, official version of an invoice that you send to your customer, formally requesting payment for a specific service. The “Final invoice” option usually only appears in invoicing or billing software.
When you are preparing to charge a customer for a service, you can create an invoice beforehand and check with your colleagues or your customer, then make changes as needed. But once you make an invoice Final, it is illegal to make any revisions. The invoice is now “locked.” You cannot edit the customer name or billing info, nor can you adjust the pricing or taxes.
If you have created or sent a Final invoice and realize there is a mistake on it, then you must cancel that charge by issuing a credit note, and then re-create a new invoice. Yes, this is as annoying as it sounds. But tax authorities have created this no-revisions law to crack down on fraud.
8. Recurring invoices
Recurring invoices are invoices sent to the same customer, for the same amount, at a regular interval, usually monthly or yearly – basically any time there are recurring payments! They automate the billing process for subscription-based services, ensuring a steady and predictable cash flow. For a SaaS business, where subscription models often reign supreme and the focus is on constant growth, recurring invoices are the backbone of financial stability.
You can turn all types of invoices into recurring invoices, if you use the right automation software. Automatic invoicing not only reduces human error, but if you’re running a SaaS business, it also saves you loads of time each month. A tool like Quaderno will automatically create and send recurring invoices that are customized to your brand! Curious how it works? Here’s how to set up a recurring invoice in Quaderno.
Since so much of commerce takes place online these days, invoices for businesses have also moved online and taken on new formats. Online invoice formats are not radically different from those in paper and print, but there are special expectations regarding how these invoices are sent and stored.
Digital invoices are the standard format for online services and products. Business owners create digital invoices using software, which could be anything from Microsoft Word to a specialized invoice generation tool. Then you send the invoice to the customer via email.
In these cases, you must collect information about the transaction and enter it into the document or software, so the invoice is generated with all the necessary data. In some cases, with the right software, digital invoices can be automated! That means the software registers the transaction, collects the data, then creates and sends the invoice automatically.
Electronic invoicing or e-invoicing
An e-invoice, short for electronic invoice, is very much like a digital invoice, except e-invoices serve a specific purpose and must follow specific regulations. Business owners must use a special software that is designed to create and transmit e-invoices, specifically.
Many countries are rolling out mandatory e-invoicing laws to enhance transparency, reduce fraud and streamline tax reporting. How will electronic invoicing help? Well, e-invoices adhere to a standardized digital format, often using XML (eXtensible Markup Language) or other electronic formats. This structured data makes it easier for computers and various softwares to interpret and process the information on invoices. So data entry is automatic, and much of business accounting and tax compliance is easier to oversee – and scrutinize.
How to prepare different types of invoices for businesses
The best solution for managing different types of invoices is to use an accounting and tax tool that automates it all for you. Quaderno can do it. Quaderno will issue the right invoice to every customer, no matter what variables you throw at it: foreign country, foreign currency, different tax rates, B2C or B2B. Quaderno will even send invoices in your customer’s own language! The point is to save you time and bring you peace of mind, but we also delight your customers.
Sign up for Quaderno’s free trial, no card necessary, and see how you like our automated invoicing!
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the Tax Agency.