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Basic invoice types you need to know

Which are the basic invoice types in business?

Our intensive crash course on invoicing is far from finished. After learning how to calculate your billable hours and how to write an invoice, we still have a long way to go. The latest addition to the series of articles about invoicing was the full guide on how to send an invoice email.

It’s about time we explored the basic invoice types. Each one of the following types of invoice serves different purposes for the professionals in the freelancing and SMB world.

Invoice Type #1: Commercial Invoice

A commercial invoice is used when goods are sold across different countries and continents. In this kind of invoice, you should explicitly state the number of products, and apply the right taxes to them. At the same time, along with the number of goods, weight and total amount, the commercial invoice is required to have the necessary Harmonized codes. 

The Harmonized System is a set of names and numbers that categorize traded merchandise. This invoice type is not used for the exchange of goods in the EU but mostly for international payments. Within the EU limitations, a standard invoice will work perfectly for any trade of products and services. 

Invoice Type #2: Proforma invoice

What does pro forma mean? What is a proforma invoice? These two questions come hand in hand since the name, and use of the specific invoice may elude some readers. “Pro forma” in Latin means “as a matter of form”. In reality, a proforma invoice is an estimate of the final price of the goods or services you will offer. You can send it to the client before any contract or agreement has been made. This invoice type is not payable, but it is considered to be a heads-up regarding the approximate cost of your work.

Apart from its preparatory nature, the proforma invoice can also be useful for budgetary allocation and financial approval by higher ranks in a company.

Invoice Type #3: Interim invoice

Have you been hired for a big project which will be taking months to finish? Do you want to send invoices whenever you’ve achieved a milestone? If the answer is positive, then you need to know about interim invoices. They are invoices that you can send while working on a project in order to break down its workload in modules. The interim invoices can be beneficial for you and your client. You get paid for the work done up to a certain point. Equally, the client won’t have to handle a large payment when the project finishes.

Invoice Type #4: Final invoice

As its self-referential name suggests, this invoice type is the last one you send after the completion of the project. The final invoice includes the calculated billable hours and extra fees that concern the project you’ve worked on. If there were some interim invoices in the meantime, those paid invoices would be included as paid and subtracted from the total amount due to be settled.

Invoice Type #5: Past due invoice

The typical cycle of an invoice ends with the final one. However, in some cases, a client does not pay the agreed amount by the due date. Therefore, the issuer has to send another invoice to reinform the client. This time, about the outstanding payment, providing all the information included in the final invoice. The sender can also add late fees or other extra charges according to the payment terms and conditions they have previously agreed with the client.

Invoice Type #6: Recurring invoice

Naturally, if a freelancer regularly works with a specific client, then the use of recurring invoices is beneficial. Please don’t mix them with the interim invoices. Those do have an expiration date since even large projects come to an end. Recurring invoices represent ongoing collaborations such as a website backend update project which can take long periods of time to work on. So, you could issue an invoice per month or per trimester in yearly contracts.

Invoice Type #7: Credit invoice (a.k.a credit memo)

This type of invoice is one of the two sides of the same coin. The credit invoice is a document that a client sends to the hired professional, supplier or trader. A customer can issue a credit memo when they return defective goods to the supplier or if the total amount due is inaccurate. Another instance is when the first invoice is under dispute between the two parties. So, the “seller” creates a credit memo that reduces the initial invoice’s payment amount. In short, the credit invoice can be seen as a kind of a discount or an amount of credit which a customer can apply to future transactions.

Invoice Type #8: Debit Invoice (a.k.a debit memo)

On the other side of the coin, you can find the debit invoice. In general, it indicates that a client owes more money to the supplier/provider of services. This occasion can occur if the hired professional has worked extra hours not included in the invoice. A client can also send a debit memo if more they have received more goods than the ones expected. In this case, the debit memo could be accompanied by a return of goods.

Note: Both the credit and debit memo are ways to control all the possible changes in issued invoices so that there will be no taxation problems for you and your clients alike.

Invoice Type #9: Time-based invoice

This invoice type mostly concerns freelancers, agencies and professionals that time-track their work with timesheets, i.e. graphic designers, legal advisors and consultants. In this kind of invoices, a detailed report of the tracked hours and the respective tasks is included. These invoices should state clearly the billing rate per hour, per task or employee to avoid misunderstandings.

Invoice Type #10: Standard invoice

Last but not least, the standard invoice is the most used invoice format in business. It is a document, easily customizable to meet the needs of every industry, that signifies the collaboration between two business entities, provider and client. Usually, its necessary components are the contact information of both parties, the invoice number and the total amount to be paid by the client. You can find the full list of the possible elements in an invoice by reading “How to write an invoice for freelance work“.

On the whole, you should have a good grasp of these basic invoice types to find the ones that are relevant to your business needs. Then, you can choose between creating them yourself or use an invoicing platform to help you out.

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