All Invoice Types, What They Are, and When To Use Them
Depending on the purpose of issuing, the type of industry, the type of transaction, legal requirements, and specific business needs, there are several types of invoices that businesses could use.
In order to ensure seamless transactions and receive accurate payments on time, it's crucial to use the appropriate invoice type that suits your business's needs.
Here's a summary of the main types of invoices and when to use them:
Types
What Is It
When To Use It
Standard Invoice
A general sales invoice
Issued after goods or services have been provided
Commercial Invoice
An invoice used for customs clearance to assess import duties and taxes
When making international trade
Pro Forma Invoice
An initial invoice sent before the delivery of products or services
When providing a preliminary invoice to confirm the order
Past-due Invoice
An invoice reissued to collect overdue payment, often with additional late fees
When an invoice is past a due date
Retainer Invoice
An invoice issued to secure future services
For a work-for-hire contract, typically legal services
Interim Invoice
An invoice issued for partial payments
When requesting payment for a portion of the total cost of the project
Timesheet Invoice
An hour-based service invoice
For hourly services
Recurring Invoice
An invoice that is issued on a recurring basis, usually monthly or annually, for ongoing goods or services
For ongoing services, subscriptions or installments
Credit Invoice
An invoice for overpayment, returned products, refunds, cancellations, or other issues in the customer's favor
When credit is due to the customer
Debit Invoice
An invoice issued to collect any additional charge
When there is an additional charge or minor changes to the original invoice
Mixed Invoice
A combination of a credit and debit invoice
When there are both credits and debits to be applied to the customer's account
Final Invoice
A final invoice that concludes a business agreement and requests payment
After a project or service is completed or as a final follow-up of other invoices
E-invoice
Any invoice that is sent and received electronically
When an invoice in an electronic form is preferred or required
Now, let's take a closer look at each different type of invoice in detail.
Standard Invoice
A standard invoice is a regular sales invoice that provides the buyer with details of the purchase, including the total cost due and how to make the payment. This type of invoice often has a simple and flexible format that fits most industries.
For most businesses, a standard invoice is a sufficient document to request payments for the purchased goods or services from the customers. The invoice also serves as legal proof of the transaction after the payment is completed. In addition to this, the seller may also provide a receipt of payment to confirm the transaction as well.
When to Use a Standard Invoice
When collecting payment from the customers.
Normally, an invoice would be sent to request the payment after the service was provided or the goods were delivered.
Example: BKB Industries produced and delivered 60 precision machine parts to the buyer and now needs to collect payment. BKB Industries can issue a standard invoice to the customer, outlining the quantity, unit price, and total amount for the machine parts, as well as providing payment details and terms, such as wire transfer within 30 days.
Commercial Invoice
A commercial invoice is an invoice that is mainly used in international trade. It is an important document for businesses that export and import goods to collect payment from abroad and for customs authorities to determine applicable import duties and taxes. Normally, a commercial invoice requests the final price of the goods or services, including all related expenses, such as shipping fees.
This type of invoice contains details of the purchase that are crucial to the customs process. Hence, businesses must be extremely cautious when creating one, as mistakes can cause delivery delays.
It is mandatory to provide a commercial invoice when importing goods to some countries, and failure to do so may result in the goods being held at customs or returned to the sender.
When to Use a Commercial Invoice
When shipping goods internationally and complying with international trade regulations.
Example: BKB Industries, a business based in Hong Kong, received an order from a client in Canada to produce 600 machine parts. In order to facilitate the customs process, BKB Industries includes a copy of a commercial invoice when shipping the products overseas to the client so the duties and taxes are calculated accordingly.
Pro Forma Invoice
A pro forma invoice, also spelled as a proforma invoice, is a preliminary invoice sent to the buyers before the delivery of goods or services. It includes details of the purchase, such as the products, estimated cost, logistic information, and more.
A pro forma invoice is a practical document to get an order confirmation from the buyers, as it allows the customer to review the purchase, estimate the cost, and negotiate terms. The seller and the buyer can use this invoice to communicate and ensure mutual agreement before finalizing the transaction.
Businesses in international trade can also issue a pro forma invoice to help estimate import duties and for customs purposes. However, it is different from a commercial invoice as a pro forma is not a legally binding document.
When to Use a Pro Forma Invoice
When confirming a large order with a customer.
When declaring the value of exporting or importing goods to customs.
When bidding on a project, a proforma invoice can be sent as part of a proposal.
A company that provides services to a foreign client may opt to send a pro forma invoice to the client before beginning any work.
Example: BKB Industries received an order of 60 precision machine parts. The company can send a pro forma invoice to the customer, stating the price per unit, the total cost, and any discounts. The customer can review if BKB Industries got the order correct, from the quantity ordered to the agreed price per unit, and then inform them to begin the manufacturing process without having to pay yet.
Past-due Invoice
A past-due or overdue invoice is an unpaid invoice that is past its payment period or specific due date. When the customer fails to pay on time, the supplier could reissue the invoice, send a reminder to notify the buyer of late fees or interest according to the payment terms, or take legal action.
When to Use a Past-due Invoice
An invoice of any type is automatically past-due when it is unpaid past the payment due date.
Example: BKB Industries has stated in the invoice that they expect payment within 30 days, but it has been 40 days from the invoice issue date, and they haven’t received any payment from the customer. In this case, BKB Industries can send a reminder notice to the customer, requesting a full payment as soon as possible with a $100 late fee.
💡 Tip: For businesses that often have to deal with past-due invoices, it might be time to review your invoice template if the details are stated clearly. For customers, setting up a reminder is one way to improve your invoice payment management.
Retainer Invoice
A retainer invoice is an invoice for future service. Essentially, a retainer invoice requests a client to pay in advance for work that will be done in the near future or to secure a service to be used when needed. It can be thought of as a deposit or pre-payment to reserve services or to prevent cancellation. This invoice is often used for professional services like a consultant, advisor, lawyer, etc.
A retainer invoice is often sent along with a legally binding retainer agreement.
When to Use a Retainer Invoice
When providing professional services.
When a retainer agreement is in place.
Example: A client needing legal assistance contacted BKB Legal Services. As the client does not know the exact period when the service would be required or how long they would need the service, BKB Legal Services sends a retainer invoice following a retainer agreement to the client to secure payments for the company and to make sure that a lawyer is available for the client's case.
Interim Invoice
While working on a large project, interim invoices help divide payments into smaller parts. They are sent at pre-agreed milestones during the project's progress, requesting payment for each completed portion. Interim invoices ensure vendor cash flow and avoid burdening the buyer with a hefty sum.
When to Use an Interim Invoice
When working on projects that take several months to complete, for example, construction projects, software development projects, and marketing campaigns.
Example: BKB Construction Services was contracted to work on a 12-month building project. To maintain an adequate supply budget, they agreed with the client to issue an interim invoice for payment upon completing every quarter of the total project.
Timesheet Invoice
A timesheet invoice is a hybrid of a timesheet and an invoice. It is used when the total cost of service is calculated based on the hours that the employee works to complete a project.
This invoice is commonly used by service-oriented businesses that charge customers for billable hours and is typically implemented throughout the project. A timesheet invoice usually records the start and end date of the project, the tasks, hourly charges, total hours, and total charges.
When to Use a Timesheet Invoice
When providing professional service and charging by hours.
Example: Let's say a consultant works at the standard rate of $150/hour. If hired to work for 20 hours, a consultant can issue a timesheet invoice requesting payment of $3,000.
Recurring Invoice
A recurring invoice is an invoice issued to the same customer for the same amount of money and for the same service at a regular intervals. Sometimes, a pre-agreed-upon payment is automatically deducted from the customer's account.
If the customer fails to make a payment on time, the vendor might withhold the service or choose to cancel it for that payment term.
This invoice is a convenient choice for businesses that offer subscriptions, such as internet service providers, streaming services, cleaning services, or food suppliers.
When to Use a Recurring Invoice
When the businesses deliver supplies or services regularly, like weekly cleaning or quarterly maintenance contracts.
When the business uses a subscription model where the same bill is sent out each period.
When the business requires payment in installments, such as car dealerships.
Example: BKB Cleaning Services provides a weekly cleaning package for apartments. They may send a recurring invoice to the clients every Friday to cover the service provided.
Credit Invoice
A credit invoice, also known as a credit memo or credit note, is a document used to notify a client that they are receiving reimbursement in the form of credits from the seller. This may follow invoice errors, customer overpayment, discounts, refunds, returned items, or order cancellation.
Regardless of the reasons the credit is offered, the seller should always generate a credit invoice to record the transaction.
This invoice always displays a negative total amount. For example, if a refund of $20 is issued, the credit invoice would be written as - $20
When to Use a Credit Invoice
When there are issues in the customer's favor, such as damaged goods, order delays, missing order, etc.
When there is an overpayment and credits need to be given back to the customer.
When a customer receives a discount after they have paid the full amount.
Example: The client received the machine parts they ordered from BKB Industries, but the delivery arrived 3 days later than expected, which caused a minor disruption in the company’s operation. BKB Industries then offers a $200 credit to the client to redeem in the next purchase.
Debit Invoice
A debit invoice, also known as a debit memo or debit note, is used to add additional charges to the outstanding amount or to make a minor adjustment after the invoice is issued and received.
Usually, the seller would issue a debit invoice to the buyer when the total charge has been increased. However, it can be used when a time-based service takes longer than expected, but it is important to inform the customer first.
When to Use a Debit Invoice
When the customer increases the quantity of their order
When there is a miscalculation of additional charges such as tax or delivery fees.
Example: BKB Industries already sent an invoice to the client requesting $2400 as a payment for the 60 machine parts they supplied. However, the delivery fees need to be recalculated, resulting in an additional cost of $80. They can send a debit invoice to the client for the additional charge.
Mixed Invoice
A mixed invoice includes the details of both credit and debit invoices and provides the accumulated total amount. The outstanding amount could be owed to either the buyer or the seller.
When to Use a Mixed Invoice
When errors favor the client and the buyer.
When you are combining credit and debit invoices.
When you need to decrease the amount the client owes but simultaneously increase it.
Example: BKB Industries issued a credit invoice worth $200 to the client and a debit invoice requesting an additional $80. In this case, BKB Industries can subtract the $80 fee from the $200 credit and send a mixed memo to inform the buyer of how they will repay the remaining $120.
Final Invoice
A final invoice is an invoice that concludes the total cost due for products or services rendered after deducting the amount charged by a retainer or interim invoice. It is usually sent to collect the remaining payment upon the completion of a project.
A final invoice includes details similar to a standard invoice, such as information about the product or service, invoice number, invoice date, and total amount. But if an amount was deducted prior to the end of the project, the business should address this in the invoice as well.
When to Use a Final Invoice
When a project is complete.
When issuing a final payment agreement after a proforma invoice.
Example: After completing a building project, BKB Construction Services issues an invoice to the client, requesting the remaining amount after deducting the amount paid according to the interim invoices.
E-invoice
Electronic Invoice is an umbrella term referring to any invoices sent electronically, regardless of their specific types. For instance, as an attachment in an invoice email.
When to Use an E-invoice
When an electronic invoice is preferred.
When a business wants the invoice to be conveniently shared among many stakeholders.
When a business uses an automated invoicing system.