An invoice becomes a crucial written record to indicate a sale or supply by one business to a customer or another business. It consists of details pertaining to a particular sale, such as the purchaser’s details, value and quantity sold, taxes charged, and payment terms.
Many countries govern the process of invoice issue, most likely associating it with the indirect tax laws of that country. In India, indirect law such as the Goods and Services Tax (GST) lays down rules on invoicing such as the format, contents, and time of invoice or bill of supply. Let’s get a complete overview of invoicing and billing in India.
What is an invoice?
An invoice refers to a document that describes the products and services that a business offers to its customers and mentions the conditions for customers to pay for such an invoice. Bills or invoices lay the foundation for a small business’ accounting records. An invoice elaborates how much your customer owes to the business or supplier when invoice payment is due and what products were sold or services were rendered.
Bills or invoices are business records that help companies accelerate payments for their sales and services, and hence efficient invoicing is crucial for small businesses. As per the Oxford English Dictionary, Bill or invoice is defined as “A list of products sold or services provided, together with a statement of the sum due such as a bill.”
Users of invoices and their purpose
For accounting purposes, invoices are considered source documents. Invoicing is followed to keep track of sales made by any business organisation with its customers.
It is raised by every business owner and practising professional across industries to track the sales carried out for a period and services provided. Businesses use invoices or bills for many reasons, such as the following
- Invoice acts as the basis for asking clients or customers to pay on time.
- Account for the sales or supplies.
- Tracking the inventory of the business.
- The invoice may be used as a historical record to forecast future revenue.
- Keeping track of business income for tax compliance purposes.
Time limit to issue an invoice
In business terminology, for the sale of goods, invoices are issued immediately when the goods are shipped with a general credit period up to 30 days from the invoice date.
To render continuous services, bills or invoices must be issued periodically, such as monthly by the end of the month. A 30-day credit period applies from the invoice date. The bill is raised immediately once the service is complete for a one-time service.
However, the GST law determines the time limit to raise tax invoices for all the GST registered businesses. The law defines separate time limits to raise the bills or invoices for supplying goods and services.
If it is a normal sale and one-time in nature, the time limit to raise the invoice depends on whether or not the goods involve movement. If it involves movement, the time limit is on or before the date of removing the goods. If it does not involve movement, the time limit is fixed as the date on or before the consignment delivery date.
Suppose a continuous supply of goods under an arrangement with successive account statements or subsequent payments. In that case, the business owner must issue an invoice or bill during or before each such account statement is issued or when each such payment is received.
Meaning of invoice due date
When it comes to billing or invoicing, the business owner must include a due date on the invoice to help facilitate prompt payment.
In a usual business context, the invoice due date happens to be the farthest date by when payment is allowed to be made for an invoice before it turns overdue. It could be one or graded but signify that the full or part payment is due. It mostly warns that the seller can levy penalties and interest if the invoice payment is not made by the due date by the customer.
Since a bill is a legal document that is crucial for sale, one must mention the due date in the invoice to keep the consumers informed and safeguard themselves from any legal disputes. It removes any confusion about when the invoice payment is due and avoids any possibility of denial of payment information for each invoice.
Indian laws governing invoicing rules
If you run a GST registered business in India, you must provide GST law compliant invoices to customers while selling services or goods. There is no standard format for a normal invoice, but such an invoice must contain certain specific fields mandatorily as per Rule 46 of the CGST Rules.
Since 1st October 2020, the country has shifted from voluntary to mandatory e-invoicing requirements. It is implemented in a phased manner based on turnover levels. During the first phase, it applied to those having annual turnover at PAN level of Rs.500 crore. Later on, it was made applicable to those with turnover of equal to or more than Rs.100 crore. Since 1st April 2021, it is made applicable to those businesses with a turnover of more than Rs.50 crore.
The e-invoicing process involves submitting an already raised Business-to-Business (B2B) tax invoice on the government’s e-invoice portal or Invoice Registration Portal (IRP). The IRP does validation and authentication through the GST Network for every invoice uploaded. After this, the e-invoice is sent to the buyer.
Under the GST law, a tax invoice forms a piece of evidence for every supply and is crucial for the buyer or recipient to avail Input Tax Credit (ITC). Under Section 16 of the CGST Act, the GST registered buyer must hold an invoice to avail the ITC.
On the other hand, the Indian Customs law prefers the issue of commercial invoices for import and export transactions. As per the current Customs procedures, an importer or exporter have to issue a commercial invoice and send out the packing list along with the Customs declaration form, i.e. Bill of Entry or Shipping Bill, for import and export, respectively.
Both commercial invoice and the packing list are much-needed for Customs purposes, as the commercial invoice evidences the value of the imported/exported products. Likewise, the packing list makes it easier to check the quantity of the products and duties thereon.
Various types of an invoice or billing documents
There are various invoices or billing documents businesses use for their clients or customers.
A standard invoice refers to the most popular form of invoice considered mainly by small businesses. It is flexible to fit most businesses operating from different industries and following different billing cycles.
Credit notes and debit notes are also known as credit memos and debit memos, respectively. Credit notes and debit notes are used respectively to decrease the invoice value and increase the invoice value of raised invoices initially.
For example, credit notes are raised while the business owner wants to provide a discount or refund its customers or buyers for any sales returns. The debit notes are raised to increase the quantity, value, or tax on the original invoice.
Moving on, a pro forma invoice refers to a sales estimate that a business owner shares with a customer before confirming the delivery of products or rendering of services. A pro forma invoice provides the client with a price estimation for the work carried out or the product to be built. When a service project is finished, pro forma invoices must be accurately adjusted to arrive at the hours worked.
Coming to international transactions, a commercial invoice is a crucial document given by a business owner for goods that it sells to consumers across the globe as exports. Commercial invoices contain the information about the sales that are needed to compute the customs duties for cross-border transactions.
A timesheet invoice refers to a service invoice adopted by companies or professionals based on the number of hours they work and their hourly pay rate. Contract workers who are paid hourly by their contractor maintain timesheets.
Under the GST law, a bill of supply is issued by the business owner or professional to supply any GST exempted or non-taxable goods or services. It will not have a tax component.
One can also come across other types of invoices such as expense reports, final invoices, interim invoices, past due invoices, e-invoices and recurring invoices. Modern-day invoicing software provides options for selecting suitable templates and a range of business documents from invoice to e-way bill and e-invoice.
Ideal format and contents of an invoice
While choosing the best invoice template for invoicing, it is critical to understand the services or product supplies, customer preferences or clients’ needs, and business objectives.
Choosing the best invoice involves selecting the right format that lets one bill for their services or supplies while ensuring faster payments. An apt invoice format is created by considering the business owner’s requirements and keeping track of the invoicing-to-payment process.
Sellers can bill customers or clients for their supplies or sales, keep the account details, be paid accurately, and keep all information they need, along with the tax break up, in a professionally formatted invoice.
Hence, charging for supplies and payment receipts from clients or customers can become easy with the right and complete invoice format. However, one must first create a custom format of the invoice or bill to meet the industry and business requirements.
Sellers must format the invoice with all particulars and ensure that they get paid entirely on time without errors. Recording this in the invoice will allow clients or customers to pay the seller and help them organise their finances. Accordingly, the seller’s invoice or bill would be better structured and streamlined if they use the right format.
Along with the business and customer needs, every GST registered organisation must follow the GST laws and e-invoicing rules wherever it is applicable.
An ideal invoice contains the following items:
- A header with the seller’s business name and logo
- Invoice number with a unique identifier
- Seller’s business location and contact information
- Buyer’s name, billing and shipping location and contact
- Invoice date
- Particulars of goods or services sold and quantity
- Additional charges, fees or taxes such as GST, cess and customs duties
- Total amount due with taxes
- Payment terms and conditions
- Invoice due date/dates
A tax invoice must have the following components as per the GST law:
- Name, location, and GSTIN of the seller
- Name, location, and GSTIN of the buyer, if they are registered under GST
- HSN code or SAC description of goods or services supplied
- Invoice number, that is serially numbered and is unique for every financial year
- Mention the type of invoice that document is, such as a tax invoice, supplementary invoice or revised invoice
- Unit of measurement and quantity of goods and services
- The tax rate for every item on the invoice
- Amount of CGST, SGST, IGST or UTGST in separate columns
- Place of supply
- The total value of goods and services supplied
- Delivery location, in case it is not the same as the place of supply
- If a reverse charge applies to the supply, then it also is duly mentioned
- Supplier’s digital signature or signature of their authorised person
A sample GST invoice as generated by the modern-day invoicing software looks as follows:
What is the importance of electronically raised invoices?
An electronically generated invoice or bill is created using the supplier’s invoicing software or system, a web-based form or an online bank. The e-invoice may then be downloaded or directly sent to the buyer’s software. Moreover, the invoice made electronically on the invoice software automatically forms a base for accounting and ledger creation of the buyer’s or debtor’s account.
Issues such as gaps in accuracy checks, manual data entry errors, and software swapping are avoided with electronically generated bills or invoices or e-invoices. The invoice must be in a standard format that the buyer’s system can understand to allow these to happen.
e-Invoice is not a scanned invoice paper or documents processed with Optical Character Recognition (OCR). Additionally, it cannot be in PDF, Excel or Word, needing manual intervention.
How does invoicing software help in smart and easy Invoicing?
Modern-day invoicing software assists businesses and professionals in the following ways:
- One can choose from a range of invoice templates to suit one’s business needs
- One can create and add fields in the invoice to suit one’s business needs
- It allows one to auto-populate customers’ and item details instantly on the invoice
- It helps in the easy lookup of HSN codes for ensuring zero errors
- It always stays up-to-date with the latest government updates regulations and is future proof
- It promotes quick and easy document sharing with customers
- It helps one to get access to GST, e-way bill and e-invoicing on tap