Building Your Business Types of Invoices You Should Know About What businesses need to know about getting paid By Lorien Strydom Lorien Strydom Twitter Lorien Strydom is a small business and financial writer at The Balance who has been writing on personal and business finance topics for more than a decade. She is the Country Manager for Financer.com and specializes in helping consumers in the U.S. make better decisions about their personal and business finances. learn about our editorial policies Updated on November 29, 2021 Reviewed by Margaret James Reviewed by Margaret James Twitter Peggy James is an expert in accounting, corporate finance, and personal finance. She is a certified public accountant who owns her own accounting firm, where she serves small businesses, nonprofits, solopreneurs, freelancers, and individuals. learn about our financial review board In This Article View All In This Article The Importance of Invoicing for Cash Flow 5 Common Types of Invoices Different Stages of Invoicing Essential Parts of an Invoice Invoicing Is a Critical Job Photo: Jamie Grill / Getty Images Businesses create many different types of invoices for their clients every day, and the type they use depends on the industry of the business and how they bill their clients. Different types of invoices can give clients flexible payment options, and each of them has a specific purpose. With so many options available, you should know which type of invoice to send and when. For example, a business shipping goods to a different country needs to issue a commercial invoice that includes information about the goods and their value. A photographer, on the other hand, won’t need a commercial invoice for day-to-day invoicing, and they will likely use a standard invoice. Learn more about why proper invoicing is critical for your business’s cash flow, what elements must be included in an invoice, and the different types you can use. The Importance of Invoicing for Cash Flow There is more than just one type of invoice used in business. Understanding which invoices to use and when is critical to getting paid on time and maintaining a healthy cash flow. Note Cash flow issues are one of the main reasons small businesses fail. In fact, the control of cash is one of the most critical considerations for a business’s financial stability and security. Proper invoicing has as much of a direct influence on a healthy cash flow as incorrect details, so choose the right type of invoice to avoid invoicing mistakes and late payments. 5 Common Types of Invoices Because there are different demands for businesses in specific industries—and also for the various services and products they provide—several different invoice types are used accordingly. Standard Invoice A standard invoice is the most common invoice type and is issued by a business to a client. It uses a flexible format that fits most industries and billing cycles. Standard invoices usually include basic information, such as: The business’s name and contact detailsThe client’s name and contact detailsA unique invoice numberThe items purchasedThe total amount of money owed by the client Commercial Invoice Commercial invoices, also referred to as business invoices, are issued by businesses for goods provided internationally. Part of the required documentation for foreign trade, these invoices include details of the products and the sale so that customs duties can be determined for cross-border sales. The information included on commercial invoices includes the: Shipment quantityDescription of the goodsVolume or weightPackaging formatCountry of originCarrier identification number (sometimes called an air waybill number)Total value The commercial invoice may also contain a declaration that the invoice is original, details of the person in charge of the transaction, and special comments or notes. Timesheet Invoice Timesheet invoices are often used by professionals who render services based on time. These invoices are ideal for businesses that invoice clients based on the number of hours they worked on a project. They’re also a good fit for contract employees who are paid hourly by the employer. Technical writers, psychologists, freelance journalists, and therapists are professionals who might use a timesheet invoice. Credit Invoice Also known as a credit memo, a credit invoice is a record of an amendment to an original invoice. It is used to confirm that a business owes the client (or buyer) money. This is used when: A business doesn’t deliver the goods and services indicated on an invoice. The client receives damaged goods. There is an error in the pricing. The client returns products. A credit invoice will always have a negative total to cancel or reverse the incorrect invoice. As an example, if a business owes a client a $200 refund, the credit invoice will have a total of -$200. Debit Invoice A debit invoice (or debit memo) is used when you want to increase the total charge to the client. Businesses can issue these invoices when they have underbilled a client and need to correct the total. Say a consultant ends up spending more time on a project than previously recorded on the original invoice. She can send a debit invoice for the additional hours to the company that hired her. Note Both credit and debit invoices can be used to make corrections or adjustments for bookkeeping and accounting purposes. Different Stages of Invoicing There are different stages in the invoicing process, and although each type of invoice has its own process, they all contain the same type of information. To better manage your business’s cash flow, it’s important to ensure that your invoice process runs smoothly and that clients are invoiced on time. Pro Forma Invoice Pro forma invoices are typically issued when delivering services or products. However, in some situations, a client wants to know what to expect from a purchase before they commit. This is also where a pro forma invoice comes in. It’s often the first step in the invoicing process. Businesses issue pro forma invoices to clients before work is finished. It outlines the payment as a standard invoice would, but it isn’t seen as an official demand for payment. Rather, it serves as an estimate of the sale, allowing the client to get an idea of how much the services or products will total. Because a pro forma invoice is seen as an estimate and is subject to change, it isn’t recorded in the accounts receivable. Interim Invoice An interim invoice breaks down the total cost of a bigger project into smaller payments. Businesses will typically send several small interim invoices as the project progresses (often at agreed milestones), as opposed to sending one invoice after the project is completed. Interim invoices help to maintain a business’s cash flow during long projects and can also benefit clients by allowing them to make smaller, manageable payments. Final Invoice Final invoices are sent as the official request for payment after a completed project, product, or service. If no long-term projects or interim invoices are required, this is the type of invoice to use. For most businesses, this is seen as their standard invoice. Past Due Invoice When a customer does not pay the final invoice by the due date, a business can send a past due invoice. This reminds a customer that their payment due date has passed. All the information on the final invoice should be included on the past due invoice, along with any late fees or interest. Note Send a past due invoice immediately after the client’s final invoice becomes overdue. Recurring Invoice Recurring invoices are used to bill customers for an ongoing project or service. You typically charge the same amount at specific intervals, similar to that of a utility bill. Recurring invoices work very well for subscription-based services or if your clients have memberships with your business. For example, if you own a gym, you could use recurring invoices to bill your members every month. Unlike interim invoices, which cease once a long-term project is over, a recurring invoice has no set end date. You’ll keep charging recurring invoices until your client or customer decides to cancel the relevant subscription or service. Account Statement Although an account statement is not technically the same as an invoice, it is very similar. Account statements are issued to clients and offer a detailed summary of the goods purchased or the services rendered. They also include payments made and any amounts that are still outstanding. Similar to bank statements, account statements contain a summary of all transactions between a client and a business. Essential Parts of an Invoice These essential parts of an invoice should always be included, regardless of the type of invoice used: Client’s name and contact informationBusiness’s name and contact informationThe word “invoice”Billing and due datesProducts or services providedInvoice numberExtra taxes and feesCost per unitPayment termsTotal amount owed Invoicing Is a Critical Job Knowing the differences between the various invoice types is crucial to billing your clients correctly, so prioritize this part of your job. Whether you run a small business or work as an independent contractor, get the necessary tools to handle your invoicing or hire someone to do it on your behalf. The invoicing process is especially critical for sole proprietors and small-business owners. Creating and sending out invoices on time will allow your business to have adequate cash flow and ensure that you are paid on time. Key Takeaways Business owners may choose from several different invoice types depending on the industry of the business and how they bill their clients.A standard invoice is the most common type of invoice issued to bill clients.Essential details required on every type of invoice include the business’s details, client’s details, due date, invoice number, and payment terms.Understanding the different types of invoices and how to invoice your clients properly is a vital part of running a business. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. CB Insights. "The Top 12 Reasons Startups Fail."