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What is an Invoice?

Michael Pollick
By
Updated: May 16, 2024

An invoice is a detailed bill left by vendors and outside suppliers for goods or services rendered to a company. Typically, it lists the quantity of each item, prices, billable hours, a service description, and a contact address for payment. While some expenses may be paid out of a general fund or petty cash account, an invoice is usually paid through an accounts payable department by the posted due date.

As a legal document, an invoice can be used as evidence of an incurred debt. The recipient of the goods or services can challenge the legitimacy of individual charges, but the document itself is considered a bona fide debt. Sometimes, a vendor or serviceperson cannot collect on a bill immediately, so the company will send a bill at a later date for payment. In other cases, the actual daily expense of a service may be so low that a company will simply wait until the charges have accumulated to a certain point, and send a bill to cover all of the costs at once. Vending machine attendants and bottled water providers, for example, may only send one invoice a month instead of billing the company a few dollars a day for supplies.

Not all invoices are bills of sale, however. A manufacturer may send out a "shipping invoice," which details all of the parts and accessories included in a particular order. This document should be compared to the actual parts received by the store or customer. Car dealers also receive an invoice from the factory that details the actual price of the basic vehicle and any optional equipment installed. The dealer may offer a discount to the customer which seems to fall below the invoice price.

The use of an invoice as evidence of a legitimate debt can sometimes be abused. Unscrupulous companies may generate false ones to account for missing funds or to inflate sales numbers to stockholders. This document is only enforceable and legal if corroborative evidence, such as inventory, duplicate bills, etc., proves the goods actually exist or the service was actually performed. Companies and individuals do have the right to challenge suspicious invoices in a court of law.

Some companies who use invoices frequently will design their own forms, but generic forms can be ordered at office supply stores. There are also computer programs available which can generate specialized ones through the use of templates. A professional invoice should contain detailed information on the goods or services, clear and accurate prices, and current contact information for any billing questions a client may have.

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Michael Pollick
By Michael Pollick
As a frequent contributor to SmartCapitalMind, Michael Pollick uses his passion for research and writing to cover a wide range of topics. His curiosity drives him to study subjects in-depth, resulting in informative and engaging articles. Prior to becoming a professional writer, Michael honed his skills as an English tutor, poet, voice-over artist, and DJ.
Discussion Comments
By anon342872 — On Jul 24, 2013

What does "customer charged at cost" mean?

By anon328821 — On Apr 05, 2013

A vendor claims the original price on a product for which I was invoiced was not correct, that it was their error and now refuses to deliver the product unless we pay the new amount. We refuse and demand delivery for original amount on which we paid already half as deposit. Who is legally correct?

By anon325443 — On Mar 16, 2013

What happens if you are charged, but do not receive an invoice? Is it lawful to demand an invoice or a bill for a charge? And what if the company tells you that it is not their policy to issue invoices? Please state a law if one exists.

By anon313783 — On Jan 14, 2013

Is it illegal to invoice a customer prior to shipping?

By anon304599 — On Nov 20, 2012

Is it illegal to send out invoices a month early, even if it has the date that its actually due on it?

By anon295935 — On Oct 09, 2012

I've been sent an invoice for a bill from an old company. Do I have to pay it? I don't work for them and have done nothing wrong.

By anon284822 — On Aug 12, 2012

In my mind, an invoice is the legal document that confirms that an agreement to trade has taken place and is completed from a legal perspective.

If you want to document that you, as a business, have indeed sold/bought something to/from another business or person, then an invoice is the thing to have!

Therefore, invoices are very important in many countries when it comes to the laws of accounting and the tax law (typically in relation to sales tax / VAT). Documents such as an order confirmation or payment receipts can never substitute for an invoice. You ask above, "what is the difference between invoice and purchase intent"? Well the latter doesn't say that a trade has actually been made, only the intent to make a trade. The invoice, however, documents that a trade has indeed been made, although the buyer may still need to transfer funds to the seller, but that is irrelevant from a legal point of view. It just means the buyer owes money to the seller. The trade is done and is in effect from a legal point of view!

Over the years, I've come across many poorly constructed invoices that are simply lacking crucial information or are open to dispute. Here's a list of what would normally be required in an invoice document.

Must use the word "invoice" somewhere in the title or header. Must have an Invoice ID which is unique so that it can be used as a reference between the buyer and the seller. Must have invoice date. Remember that the way you print the date (or any date, indeed) must not be open for ambiguity. Avoid printing dates like '7/6/2012' but instead use '06 Jul 2012' or '07 Jun 2012' depending on what you mean. The rule is that if your business is cross-border then it is very advisable to use letters for the month as this is the only way (unfortunately) to avoid ambiguity.

Must clearly state the seller's identity, i.e., company's legal name, company address, etc. The customer must be able to tell with whom he was trading. It is surprising how many companies have incomplete or totally absent information here. This is often done deliberately by phony businesses that want to mask the real party in the trade. This should never be acceptable to the buyer. It doesn't take much to get this right. Let's say I buy an iPad from Apple. Simply stating the seller as "Apple" wouldn't be enough but either "Apple, Inc., USA" or "Apple Sales International, Ireland" would be fully sufficient to uniquely identify the seller. (Purely an example, I do not claim to know the Apple setup).

Must state the buyer's identity, typically by printing such information as name, address, Sales Tax ID / VAT ID, etc. In the online world, it is typically the customer's own responsibility to input this information.

Must clearly state each item and quantity that was purchased and the price of each item individually.

Must state "period information" for each purchased item, if applicable. For purchased items that are time limited (e.g., subscriptions, rentals, etc) the period must be clearly indicated with a start and end date or alternatively with a duration (e.g. "one year"), in which case the start and end date are implied from the invoice date.

Must have sales tax/VAT amount information if applicable. If applicable, it must state the amount from which the tax is calculated, the tax amount as well as the total amount (a.k.a. billed amount).

Must clearly indicate currency by using ISO code. Avoid using currency characters such as '$' as they can be ambiguous. If you really must use currency symbols, then use the full abbreviation, e.g., 'US$', 'C$', 'NT$', etc, but it's much better to use the three-letter ISO code.

Must indicate payment information, unless the invoice has already been paid. If the invoice has already been paid, then it is certainly best practice to indicate that, for example, by printing "paid in full," but there are many ways to indicate this.

If not already paid, then the invoice must clearly convey to the receiver of the invoice how he can settle the invoice. Often settlement can be done via bank transfer and unfortunately, this is an area that lacks fully adopted international standards which means businesses struggle to get it right. I don't blame the businesses for this. There's the ISO 13616:2007 standard for this, but it is so far only used in EU, European non-EU states and most Middle Eastern countries. The general rule is that payment information printed should be enough to uniquely identify the receiving bank account whether the payment is domestic or international. For the international part, it typically just means adding a line of two of extra information on top of what you would print for domestic payments.

If you never intend to do business outside of the US, then of course, you can ignore some of the recommendations above.

By anon231437 — On Nov 24, 2011

I have just had an invoice presented to me for work done 5 1/2 years ago. It was to do with the painting of a house that I think I paid as it was part of my contract with a building firm, the painter reckons not, can you legally charge for work after this period?

By anon224950 — On Oct 25, 2011

Are people legally obliged to give a break down of the invoice they are requesting payment of?

We have a case where we are being charged for damage but they will only provide me with a total cost of the repairs/replacements.

By anon124540 — On Nov 06, 2010

According the the Bill of Exchange act an invoice is not a bill.

I believe that everyone on this forum should bookmark the site where the BOE Act is available. It will clear up an awful lot of confusion if you simply read it and learn what "bills" are, what "acceptance" is, and what "conditional acceptance" is!

Here's how a "bill" is defined in the BOE Act:

16. (1) A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay, on demand or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to bearer."

By anon67700 — On Feb 26, 2010

What is difference between an invoice and challan.

By anon65451 — On Feb 13, 2010

Can the writer of an invoice change the content of an invoice before it is paid?

By anon48346 — On Oct 12, 2009

Can a supplier of goods legally change a paid invoice?

By anon39745 — On Aug 04, 2009

who is prepared invoice, and what is the purpose of using it?

By anon38153 — On Jul 24, 2009

I had an invoice when I left a flat from the landlady. A number of items were on there no receipts attached she deducted it and just sent the balance of my deposit. I have requested receipts on numerous occasions can I sue?

By anon34767 — On Jun 28, 2009

I got an invoice for materials needed to fix my yard. I paid 2000.00 for the materials. I got the fill needed for free. He refused anymore wanted to get job done. He never took off the fill and charged me. Also the job wasn't completed. My front yard was destroyed. He's suing me for balance. He verbally abused me and my husband. I just asked him to come back and fix the problems.

By anon34527 — On Jun 24, 2009

Nope

By anon28682 — On Mar 20, 2009

Is an invoice to be considered as a customer service?

By anon13468 — On May 28, 2008

what is the difference between cash invoice and sales invoice?

By anon7121 — On Jan 18, 2008

What is the difference between an Invoice and delivery challan..?

Plz do reply...!

By anon6554 — On Jan 02, 2008

Per the Merriam-Webster:

Etymology: modification of Middle French "envois," plural of "envoi" message — more at envoi

Date: 1560

By anon6510 — On Jan 01, 2008

Is Invoice is abbreviated word. If yes can you give details of invoice what particular words stand for. If not from where the word "INVOICE" is derived from?

By anon5682 — On Dec 03, 2007

I think an invoice is a bill for services or products rendered which means there was a contract for services or products, services were performed or products were delivered, and now there's a bill for those services or products, namely the invoice. And, I think a purchase intent, or intent to purchase is something weaker. Services have not been rendered or products haven't been delivered and therefore can't be billed for. But even more, I think an intent to purchase means there isn't a binding contract for those services or products. Rather, it's something formally stating that you plan on purchasing but have the option not to. And that purchase intent might limit the reasons why you may opt out of purchasing.

By anon2036 — On Jun 25, 2007

what is the difference between an invoice and purchase intent?

Michael Pollick
Michael Pollick
As a frequent contributor to SmartCapitalMind, Michael Pollick uses his passion for research and writing to cover a wide...
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