Who Sends an Invoice and When Is It Required?

An invoice is a formal commercial document issued by a seller to a buyer, serving as a request for payment for goods or services provided. It itemizes the transaction, detailing what was sold, quantities, agreed-upon prices, and payment terms. This document acts as a crucial record for both parties, facilitating financial tracking, accounting, and legal documentation.

Typical Issuers of Invoices

Businesses of all sizes routinely send invoices for products sold or services rendered. For instance, a retailer might issue an invoice at the point of sale for physical goods, while a software company would invoice for its digital products.

Independent contractors and freelancers also frequently issue invoices to their clients. These professionals use invoices to bill for services based on project completion, hours worked, or specific milestones. Invoices are important for their financial record-keeping and tax obligations. Service providers across diverse industries, such as consulting firms, marketing agencies, and healthcare practices, rely on invoices for their specialized services. Often, a company’s accounting or finance department generates and sends these invoices to ensure timely payment collection.

Situations Requiring an Invoice

For product-based businesses, an invoice is often sent at the point of sale or shortly after goods have been shipped, detailing the items purchased and the total cost. This practice ensures that the buyer receives a clear breakdown of their purchase.

For service-based businesses, including consultants, agencies, and freelancers, invoicing usually occurs after services have been rendered. This allows for accurate billing based on completed work, such as hours logged or project milestones. For long-term projects, businesses may utilize progress billing, issuing invoices at various stages or upon milestone completion. For recurring services or subscriptions, businesses often send recurring invoices at predefined intervals, such as monthly or annually, ensuring consistent billing for ongoing arrangements and streamlining the process.

Invoice vs. Other Business Documents

An invoice differs significantly from other business documents like quotes, purchase orders, and receipts due to its specific purpose and timing in a transaction. A quote, or estimate, is a preliminary document provided before any work begins, detailing the projected costs of goods or services. It is an offer that helps a potential client understand the anticipated expense, but it is not a request for payment.

A purchase order (PO) is a document created by a buyer and sent to a seller to formally request goods or services. It represents a commitment from the buyer to purchase specific items at a set price and defines the scope of the agreement. Unlike an invoice, which is a request for payment from the seller, a purchase order is a buyer-initiated document that precedes the delivery of goods or services. A receipt, conversely, is issued after payment has been received, serving as proof that a transaction is complete and payment has been collected. While an invoice is a request for payment, a receipt confirms payment, making them distinct documents used at different stages of the sales process.