Invoices are a crucial part of running any business, yet they often get overlooked. Knowing the different types of invoices and when to use each one can streamline your processes, reduce confusion, and help keep your books in order.
But what exactly is an invoice, and how is it different from a receipt or a statement? Let’s break it down.
An invoice is a formal request for payment that a vendor or provider sends to their customer after goods or services have been delivered. Think of it as the official document that kicks off the payment process. It typically includes essential details like the amount owed, the due date, and a description of the goods or services provided.
An invoice serves a dual purpose: For the vendor or provider, it’s a record of the sale or service and a request for payment. For the buyer, it’s a reminder to settle their account. Invoices are essential for accurate bookkeeping, tax reporting, and overall financial management.
Regardless of the type of invoice, several standard elements are always included:
Now that we’ve covered the essential parts of an invoice, let’s explore the different types of invoices — and when to use them.
A proforma invoice is like a preliminary bill. It’s typically sent before any goods or services are delivered. It gives the buyer or client an idea of all costs involved before an actual transaction takes place. Think of it as a “here’s what to expect” invoice.
When to use it: Use a proforma invoice when you need to provide a quote or estimated cost for goods or services before finalizing a sale.
This is the most common type of invoice. A standard invoice is sent after goods or services have been provided and is used to request payment from the customer. It includes all the standard elements of an invoice.
When to use it: Use a standard invoice to request payment when you’ve completed the work or delivered the products.
Also known as a credit memo, a credit invoice is used when you need to issue a refund or reduce the amount owed by the customer. It’s essentially the opposite of a standard invoice.
When to use it: Use a credit invoice when there’s been a mistake — like an overcharge or a change in services — or when a customer returns goods and you need to adjust the total amount they owe.
A debit invoice is the reverse of a credit invoice. It’s used when you need to increase the amount a customer owes. This could happen if additional services or fees were not included in the original invoice, or if services were added after the initial invoice was sent.
When to use it: Send a debit invoice when you need to bill a customer for extra work or costs incurred after the initial invoice was issued.
Recurring invoices are used when you provide ongoing services or products, like a monthly subscription or retainer. These invoices are sent at regular intervals, like weekly, monthly, or quarterly. Recurring invoices are often (but not always) for the same amount each time.
When to use it: If your business operates on a subscription model or you bill for ongoing services, recurring invoices are the way to go.
A timesheet invoice is commonly used by freelancers or contractors who bill clients based on the number of hours worked. It includes a breakdown of hours, hourly rates, and the total amount owed for a specified timeframe.
When to use it: Use a timesheet invoice when billing for labor or services based on hourly rates.
A PO-based invoice is tied directly to a purchase order (PO), which the buyer sends to the seller to formally request goods or services. The PO-based invoice includes additional information that references the original PO number and confirms that the goods or services have been delivered according to agreed-upon terms.
When to use it: Use a PO-based invoice when you’re working with a customer who issues purchase orders to track orders and payments. PO-based invoices are most common in industries like manufacturing, where procurement teams need to match invoices to POs for accurate payment processing. PO-based invoices simplify tracking and reduce payment errors by matching the invoice details with the original PO.
The final invoice is the last bill a customer receives after a project is completed. It usually includes the total project cost minus any payments made up to that point.
When to use it: Send a final invoice to close out a project and collect any remaining payments.
Invoices and statements are similar documents, but they each serve a different purpose.
A statement is a summary of all the invoices a customer has received during a specific period — typically a month or a quarter. It lists each invoice, the amounts due, and any payments that have been made. A statement doesn’t ask for payment on individual items; it simply provides a big-picture overview of what’s owed overall.
An invoice, on the other hand, requests payment for a specific transaction.
Statements are useful when you have a long-term relationship with a customer and want to provide a summary of all their outstanding invoices. They help remind the client of their total balance without sending multiple individual invoices.
No, an invoice is not a receipt.
An invoice is a request for payment, while a receipt is proof that payment has been made. Once your customer pays the invoice, you can provide them with a receipt to confirm the transaction is complete. In simpler terms, and invoice is sent before payment, and a receipt is sent after payme
Understanding the different types of invoices and when to use each one ensures your financial processes run as smoothly as possible — particularly when it comes to your accounts payable process.
Whether you’re billing for one-time supplies, ongoing work or services, or making payment adjustments (like credits and debits), choosing the right invoice type ensures clear communication and efficient payment processing.
Ready to streamline your invoices even further? Contact us today to learn more about Nimbello's invoice automation solutions.