Why Invoice is So Important for Your Business
No matter what kind of business that you have, there’s a good chance that you’re looking for ways to improve upon what you’ve already got going on. Whether it’s ways to increase overall profits or efficiency or you’re just looking to have things be a bit more organized, there are always things to improve. The question then becomes, how can we do that?
Well, by finding ways to automate parts of our everyday practices, we can boost overall productivity. Besides that, though, we can lessen the weight on our own shoulders. If you’re wondering how invoices play into that, then stay tuned!
What is an Invoice?
When running a business of any sort, inevitably you’re going to have a ton of paperwork on your hands. While at first glance invoices might seem like they’d get lost in the shuffle of all that stuff, they’re actually pretty important. That’s because they’re a type of document (usually time stamped) that exists to keep records of any transactions between buyers and sellers.
Typically, they’re itemized to ensure accuracy and to help both sides of the transaction keep track of what goods and services were exchanged in the first place. They can come in a few different forms, whether it’s a paper receipt, email receipt, or something else.
The important thing is that you know how to issue one, as well as have a place to store the ones that you’ve gotten. There are several reasons for that, which we’ll be covering in the next section.
Why are These Records Important?
Just like we hang onto receipts in our personal lives, we should be doing the same for our business transactions. While it might be tempting to rely on a Word document or something like that, or even payment apps like Venmo to keep track of this stuff, especially for small businesses, that often won’t be the best way to approach it.
Those platforms aren’t always the most secure, for one thing, and typing it all out manually just isn’t efficient. There are actually types of programs and software that allow us to store them like this one,
https://www.getharvest.com/, which can help to keep everything organized in some cases. Why bother with this, though?
As with a lot of things, it comes down to tax season. Best time of the year, right? Well, it’s critical to have records of any transactions that you’ve had while filing your taxes.
Besides that, though, there are also internal budget reviews in most organizations. They’re done annually at the least to help sort out where money is being spent and to hopefully figure out ways to reduce spending where it isn’t necessary.
Detailed record keeping is a good business practice, really. If there’s an issue with a customer’s order, you’ll be able to pull up that information quickly and get the problem resolved. That’s just one example of how it can be pretty important for a company.
How It Works
When you’re creating an invoice, there are a few things that you’ll want to make sure to include. While it might seem a bit strange, you should always have the word “invoice” on the page somewhere, usually at the top.
Next, there should be the invoice number. This is usually some sort of transaction number – it might line up with the order number, for example. That helps to keep track of which invoice is which. A lot of programs out there will do this automatically for you.
From there, ensure that the dates are recorded. Depending on the transaction, that might include the purchased date, the “received” date, or the “shipped” date. This will vary, though, as you can read about further in this article.
Whether there are special details about the payment terms and method or not, should also be noted on the invoice. For instance, if there is a series of payments because your company accepts multiple installments, each of these should be recorded, along with the required timeline involved.
Finally, there should be a description of the goods and/or services that are being exchanged in the transaction. Obviously, that will look different depending on the organizations and individuals involved. As long as it’s there, you should be good to go!
Analytics and Invoices: How are they Linked?
Most of us in the business world already understand how big of a deal analytics are. Heck, there are entire college programs dedicated to them, as you can see here:
https://online.ben.edu/programs/mba/resources/what-are-analytics. Data analysis is part of how we improve our companies.
The question is, though, how do invoices play into that? Admittedly, it does require that you keep detailed and accurate records. However, once you’ve achieved that, you can use invoices to start tracking where your budget is being allocated and what some of your most popular products are.
Of course, in terms of discovering what the popular products are, that will require some proper analysis. Thankfully, depending on the program that you’re using to organize and store your invoices, some of that can be done automatically. It’ll be up to each business to decide how to interpret the data, though.
What a lot of folks tend not to realize is that you can actually use the data to help isolate who your target audience should be. Often, there’s a bit of a discrepancy between who we expect to be our main customer base versus who it actually turns out to be. By tracking transactions and sales, you can get a better idea of who is buying from you.
Something important to keep in mind is that invoices are not actually the same thing as receipts. Instead, they’re more of a way for an organization to request payment from a customer. Often, a receipt will be issued after the invoice is “fulfilled” – i.e. when the amount is paid.
So, don’t forget that they’re not the same thing. In accounting, they are definitely not interchangeable. When you’re storing your records or uploading documents in software, don’t mix them up.
Also, you’ll want to note that there are a few different types of invoices out there. While they can be somewhat difficult to keep track of, it’s worth having at least a bit of an understanding of all of them. That way, you won’t be caught off guard if you receive one that you’re not overly familiar with.
The most common ones are of course the “standard” sales ones, which is likely what you’ll be working with more often than not. However, there are also credit and debit ones, retainer ones, and even timesheet ones. This list is hardly exhaustive, either.
At the end of the day, keeping records of transactions with invoices is helpful both for businesses and for customers. It is a way to make sure that nothing gets lost in the shuffle of busy day-to-day life since that can sometimes happen.
While it can be tempting for small businesses not to worry about this sort of thing, it’ll be worth it in the long run to start bookkeeping as early as possible. Once tax season rolls around, you’ll be thankful – it makes the filing process a whole lot easier at the least.