Understanding Different Types of Invoices: A Guide for SME Owners

Invoices are essential documents for helping small- and medium-sized enterprises (SMEs) maintain a healthy cash flow. They serve as formal requests for payment for goods or services provided, detailing what’s contained in a transaction—including the amount owed, due dates, and itemized lists of what was supplied. 

If you’re new to entrepreneurship, you may not yet know that invoices come in different types, and each one serves a specific purpose. Knowing the difference between each, as well as how to use them, will be key to good financial housekeeping practices for your business. For one, the proper type of invoice can reduce your SME’s risk of misunderstandings or client disputes; for another, it can enhance the overall professionalism and efficiency of your business operations. 

To that end, here’s a closer look at the different kinds of invoices you can use as an SME owner and what you should keep in mind when issuing them:

1) Standard Invoice

A standard invoice is the most common type of invoice, and it’s typically used for transactions where goods or services are provided to a client and payment is requested. They’re suitable for one-time or non-recurring transactions and are essential for maintaining accurate financial records for a business’s everyday activities. 

Every standard invoice includes the following information:

• The invoice number
• The date of issue
• The buyer’s and seller’s information, which includes their respective names, addresses, and contact details
• A detailed list of items sold by the supplier or the services provided by a business
• The total number of items, followed by the cost per unit
• The total payable amount, including any taxes or discounts
• The due date of payment and accepted payment methods
• Relevant information for bank transfers, where applicable 

2) E-Invoice

E-invoices, or electronic invoices, are digital versions of a standard invoice, and as such, they contain the same information found in a standard invoice. They’re created, sent, and received electronically—via email or through invoicing software—which provides SME owners with a quick and hassle-free way to bill their clients. 

Today, there are a lot of online invoice payment solutions available that advertise more streamlined e-invoicing processes. The Philippines’ Maya Invoice Payments, for instance, features fully customizable templates that allow SME owners based in the Philippines to issue professional-looking invoices quickly and efficiently. This Maya Business product also adds flexibility and accessibility to the transaction process, as it enables SMEs to accept payments via credit cards, debit cards, and e-wallets. 

3) Pro Forma Invoice

A pro forma invoice is a preliminary bill of sale sent to buyers before a shipment or delivery of goods is confirmed. It provides an estimate of the costs associated with the order and is not a demand for payment. 

Pro forma invoices are used to give clients a detailed quote before the final sale is made, making them helpful for gauging price estimates and confirming order details before a standard invoice is issued. In addition to key details like the invoice number, date of issue, and buyer and seller information, a pro forma invoice will typically also contain a detailed list of items proposed for sale, notes on the shipping details (including shipping date, weight, and transportation method), the total estimated amount inclusive of any taxes or discounts, proposed payment terms for the transaction, and a validity period for the payment terms.

4) Commercial Invoice

A commercial invoice is used for international trade transactions, serving as a customs declaration that not only provides details about the exported goods but also customs duties and taxes. It’s required for shipments crossing international borders, as it facilitates the smooth movement of goods through customs checkpoints. 

The details of a commercial invoice will always include the invoice number and date of issue, relevant details pertaining to the buyer and seller, a detailed description of each item being exported (including quantity and unit price), numbers on the total value of the goods being exported, and details on the shipment (including the method of shipment, shipment date, and destination port). The commercial invoice will also specify the country where the goods were manufactured or produced and the responsibilities and obligations of the buyer and seller for the international trade transaction in question.

5) Interim Invoice

An interim invoice, also known as a progress invoice or partial invoice, is issued for partial completion of a project or order. It allows for billing before the final delivery of goods or completion of services. 

These types of invoices are often used in projects that span over extended periods or involve milestone payments. They’re beneficial for maintaining a steady cash flow throughout the project duration. On top of details like the invoice number and date of issue, the interim invoice should contain details about the services or goods delivered up to that point, the portion of the project or order that’s already been completed, the total contract value compared to the amount on the interim invoice, the amount owed for the amount of work completed, and the due date and terms for payment.

6) Recurring Invoice

A recurring invoice is issued for ongoing services or subscriptions that require regular payments at specified intervals. It automates billing for repetitive transactions, ensuring timely and predictable payments without the need to generate a new invoice each time. As such, recurring invoices are typically used for services such as subscriptions, memberships, or ongoing maintenance contracts.

Recurring invoices include, in addition to key details like the invoice number and buyer and seller information, details on the interval at which the invoice is issued (e.g., monthly or quarterly), the date when the recurring invoice series begins and when it ends (if it's for a limited time), a list of the ongoing services or subscriptions in question, the recurring amount payable for each billing cycle, and the due date and accepted payment methods. Some recurring invoices also contain information on how automatic payments are processed. 

7) Overdue Invoice

Lastly, an overdue invoice, also known as a past due invoice or late invoice, is a bill that remains unpaid after the payment due date specified on the original invoice. It serves as a reminder to clients about outstanding payments and is meant to initiate follow-up actions for collection. 

Overdue invoices are issued when clients fail to make payments by the agreed-upon due date. When issuing an overdue invoice, SME owners must include the original invoice details (which include the original invoice number and date), the date that the overdue invoice is being issued, the total amount that remains unpaid from the original invoice, and any additional charges or penalties for late payments if applicable. The overdue invoice should also come with clear instructions on how and where to pay to settle the overdue invoice and outline the new due date by which the payment should be made to avoid further actions.

Again, your knowledge of the different invoicing types can mean the difference between financial order and chaos at your SME. Learn how to prepare each type as applicable to your line of business so that you can streamline your billing processes, improve your financial record-keeping, and stay in good standing with your business clients.