Online Accounting Guide – Issuing an Invoice

If you want people to pay you, generally you will need to be able to give or send your customer an invoice (sometimes called a sales invoice).

Ok, so you think you’ve got this one.

And maybe you do.

BUT…

Issuing an invoice free from errors is your first defence in avoiding legal conflicts with customers and taxation bodies.

Got your attention?

Let’s jump right in!

What is an Invoice?

To spell it out, an invoice is a record of purchase you give to your customers in order to charge them for goods or services you are providing.

It is a document sent to a purchaser establishing an obligation for the purchaser to pay for a product or service.

Your unpaid invoices are known as “accounts receivable”, “A/R” or just simply “receivables”. These are assets for your business as they can be turned into cash.

Check out our 10 handy invoicing tips to get paid faster! to quickly get some more cash in your bank.

In Australia, when you make a sale of over $82.50 (including GST), your GST-registered customers need a tax invoice from you to be able to claim a credit for the GST in the purchase price.

If a customer asks you for a tax invoice, you must provide one within 28 days of their request.

There are two types of invoices, based on whether you are registered for GST (Goods and Services Tax) or not.

INVOICE: If you are NOT Registered for GST:

If you are not registered for GST your invoice will not include any GST. This is known as a an `Invoice’ (this is not a Tax Invoice).

Your invoice should contain all these items:

  • Your business name and your Australian Business Number (ABN)
  • The word `Invoice’
  • The date on which you’re issuing the invoice you may also want to include an Invoice Number or Reference to help you track
  • Information about what you have supplied (and quantity if applicable) and the amount charged
  • Payment details, including how and by what date the invoice should be paid. This may include your business’ bank account or paypal information.
  • The statement ‘GST has not been charged’ at the bottom

TAX INVOICE: If you ARE Registered for GST:

You will need to provide your customer with a Tax Invoice and it needs the following information:

  • Your business name and your Australian Business Number (ABN)
  • The words `Tax Invoice’
  • The date on which you’re issuing the invoice you may also want to include an Invoice Number or Reference to help you track
  • Information about what you have supplied (and quantity if applicable) and the amount charged
  • Payment details, including how and by what date the invoice should be paid. This may include your business’ bank account or paypal information.
  • The GST amount payable this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, as a statement ‘Total price includes GST’
  • If the invoice is over $1000 the buyers identity or ABN should also be included.
    NB: An invoice containing incorrect or incomplete information is not a valid tax invoice.

In the United States, the IRS does supply businesses with identification numbers but these are not required to be listed on invoices. Other countries would generally require a VAT number or tax identification number to be included on the invoice for sales tax.

Why should you supply an invoice or tax invoice?

Customers will be less likely to buy from you or pay you if they are not provided with a correct invoice for their records.

ATO requirements:

  • If you do not include you ABN the supplier is required by the ATO to withhold part of payment owed to you at the top marginal rate
  • When you make a GST taxable sale of more than $82.50 (including GST), your GST-registered customers need a tax invoice from you to be able to claim a credit for the GST in the purchase price.
  • The ATO requires you and your customers to keep invoices as a record of their business for 5 years

How to decide what to include on your Invoice

A description of what you have provided (eg time provided, cost of goods supplied). Generally it is enough information to identify the work you have provided and provide enough detail so the customer is satisfied to make the payment.

If you provide labour and materials, it is clearest to the customer to list these separately:

  • a section that details the hours worked and the hourly rate
  • a section that details the materials supplied and the price the customer is being charged for these. You may need to break this down to provide enough information to the customer so they can see the charges are reasonable and so agree to pay the invoice

You may also want to provide proof of the work provided if you think this will assist

Remember, the clearer the invoice and the more it reflects the discussions and items provided, the quicker your client will pay

Always encourage the client to contact you if they have any issues with the invoice

How to create your invoice

  • Simply a piece of paper or email can contain all the information above, but you need to remember that you need to keep a record of it and make sure it is paid.
  • You can use a Tax Invoice Docket book and complete all the required details.
  • Use a spreadsheet or Word Document . These can work for a very small business that only issues a few invoices and has a manual method such as a spreadsheet of keeping track of sales and receipts. Remember though it can be time consuming, mistakes are more likely and difficult to track what has been paid. You will also need to make sure you have all the information required for any information you need to give to the ATO.
  • Most business will consider using some more systematic form of record keeping. The accessibility of technology to help small business with all aspects of their record keeping means the cost is offset by the time saved, money collected and improved running of the business and record keeping. Uwazi allows you to generate invoices directly within the software.

When to send your invoice

Ideally, as soon as possible.

  • For selling goods this may be before delivery
  • If you are at a job over a few days, you should do immediately once the work is completed
  • If the job is longer than a week, you should be sending Progress Invoices as otherwise there is a risk of client disputes or delay in payment

You need to try to make creating and sending invoices as streamlined as possible as they are vital for your businesses success.

Further Information – Special Situations

GST Free Sales -Taxable and non-taxable sales

 You don’t include GST in the price if your product or service is GST-free (even if you are registered for GST). You can still claim you credits for the GST included in the price of purchases you use to make your GST-free sales. The most common GST free items are:.

  • Exports if you send your goods overseas you do not need to charge GST
    most basic food
  • some education courses, course materials and related excursions or field trips
  • some medical, health and care services, medicines, medical aids and appliances some childcare services some religious services and charitable activities
  • sales of businesses as going concerns

In this situation a tax invoice that includes taxable and non-taxable items that is, items that are either GST-free or input-taxed must clearly show which items are taxable. In addition to the standard information the tax invoice must also show:

  • each taxable sale
  • the amount of GST to be paid
  • the total amount to be paid

GST is not charged when making these types of supplies, and the supplier is able to recover credits for any GST paid. No GST will effectively be paid through the supply chain, and the price the consumer pays will be completely free of tax.

Input Taxed Items

Input taxed supplies receive a less favourable treatment than GST-free supplies. No GST is charged on input taxed supplies. However suppliers are unable to recover input tax credits relating to such supplies. This means that consumers will often indirectly be charged GST, which will be factored into the price paid for input taxed supplies. The main types of input taxed supplies are:

  • Financial supplies
  • Residential rent and property sales

 

Invoices created by the recipient rather than the supplier

In most cases, tax invoices are issued by the supplier. However, in special cases, you, as the purchaser or recipient of the goods or services, may issue a tax invoice for your purchases. This is known as a recipient-created tax invoice (RCTI). You can issue an RCTI if:

  • You and the supplier are both registered for GST
  • You and the supplier agree in writing that you may issue an RCTI and they will not issue a tax invoice
  • The agreement is current and effective when you issue the RCTI
  • The goods or services being sold under the agreement are of the type allowed by the ATO
  • The written agreement can either be a separate document in which you specify the supplies, or you can embed this information or specific terms in the tax invoice itself.
Invoices with a WEG label

Some businesses in the wine industry are using accounting packages to generate invoices which give a combined GST and wine equalisation tax (WET) amount, where both taxes apply. This combined figure is shown at a wine equalisation tax-goods and services tax (WEG) label on the invoice. If an invoice only contains a WEG gure and doesn’t show WET and GST separately, it may not contain all of the necessary information to claim GST credits. This is because it doesn’t clearly show the amount of GST payable. You should seek specialised advice for this area.

How can we help with invoicing?

Uwazi has the perfect plan to meet your business needs. The great news is that Uwazi plans include all features starting from just $5 USD/$7 AUD a month with no lock-in contracts. Simply choose your plan based on how much you plan to use Uwazi!

With Uwazi, you can effortlessly create tax invoices and email them to your customers. Simply click here for your free trial to set your own Uwazi account.

 

Where to next?

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Registration

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Tax

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Bookkeeping 101

 

Bookkeeping 101 Overview and Guide

 

Getting paid

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Getting paid

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