So you’ve thought of an awesome business name, you’ve registered for self employment, you’ve set up your business bank account. It’s time to do some work and get paid! So how do you start billing customers? The answer is you issue an Invoice. In this article we’ll look at what an invoice is and how to create a self-employed invoice.

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How do you make a self-employed INVOICE?
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What is an Invoice?

In the world of self employment and small business you generally get paid from customers by issuing them an invoice. There are obviously other ways of getting paid but an invoice is a formal request for payment. So what exactly is an invoice? An invoice actually has two distinct purposes:

  • It’s a tax document
  • It’s a legal document

An invoice’s role as a tax document

From a tax perspective a self-employed invoice is essential for your own accounting records and for the accounting records of your customer (if you’re dealing B2B or Business to Business). In the event of an audit from HMRC they might ask to see a copy of all sales invoices raised and all purchase invoices received. The details shown on invoices, such as the invoice date and invoice amount, are absolutely essential to maintain accounting records.

An invoice’s role as a legal document

From a legal perspective an invoice is a formal demand for payment from your customer. It generally includes all of the information needed to get paid, such as your credit terms and bank details. In the event of a disputed payment the invoice is the normally the first port of call as a reference point for what’s going on (or what should be going on). In the event of things going to court, which hopefully is very unlikely, copies of invoices would almost certainly be used as evidence.

How do I issue a self-employed invoice?

This is entirely up to you. You can still issue paper-based invoices if you like or you can issue them electronically. The main thing is that you retain a copy of all invoices issued for your own accounting records. if you’re still paper-based this can be a photocopy. If you work electronically then you could keep PDF invoice copies.

Do I need to use accounting software?

As a small business owner you’ll probably start off by only issuing a handful of invoices per month, depending on what you sell. At this stage it’s really not worth the hassle of using dedicated accounting software to generate invoices. In many ways you’ll have much more flexibility if you take the manual approach using, for example, Excel spreadsheets as invoices. As your business grows though and you generate more and more invoices you’ll probably want a more automated process to manage that. This is where accounting packages come in to their own – not only will they generate the invoices for you but they’ll also help you keep track of who’s paid, who hasn’t paid, generating account statements and all sorts of other clever things.

For the moment though, as you’re probably just starting out, I would suggest keeping things manual. You’re going to have enough things to worry about without having to learn how to use accountancy software. Not only that but the accountancy software that you eventually use will make a LOT more sense if you’ve learned the manual methods first.

A self-employed invoice template for you

I’m going to make a few assumptions here to keep things as simple as possible.

  1. Firstly I’ll assume that you’re a self employed sole trader and not a limited company
  2. Secondly I’ll assume you’re not VAT registered – if you are there are some additional requirements when it comes to invoicing
  3. I’m also assuming you’re in the UK – if you’re not in the UK then some of this may still be valid… but don’t ask me what bits

I’ve created a simple invoice template that you can use over in the members area. This is in Excel and Open Office format and works well as long as you’re not generating hundreds of invoices. Feel free to tweak this as needed to suit your business – hopefully it’s enough to get you started.

Sample Invoice

What details do I need to include on a self-employed invoice?

If you’re self employed, here’s a few tips of what to include on your invoices. We’ll them cover each of these in a bit more detail:

  • Use the word ‘INVOICE’
  • Customer contact details
  • Invoice date
  • Unique invoice number
  • Your business details
  • Description and price of work carried out
  • Total amount due
  • No VAT to pay
  • Payment terms
  • E&OE
  • Terms and conditions
  • Payment methods & bank details
  • Purchase order number

Use the word ‘INVOICE’

It sounds obvious but I’ve seen this overlooked on many occasions. A self-employed invoice needs to actually have the word ‘invoice’ on it. If it doesn’t then many accounts departments will reject it. Normally put ‘INVOICE’ in big letters at the top.

Customer contact details

You need to include contact details of your customer. Normally this would include their company name, a contact name in their accounts department (if you’ve been given one) along with their company address. If you don’t know who to send it to then a safe bet is their Accounts Payable department. For example, if you’re doing freelance design services for a marketing agency you might send your invoice to:

Accounts Payable
Squiggle Design Services
13 Acorn Street

If you’re dealing with an end consumer rather than a business then you would normally just address the invoice to the person you’re dealing with at their home address.

Invoice date

You need to include an invoice date. This is quite an important one as it will be used as the tax point date by the receiving company. It will also be used as the reference date for your payment terms. Normally you’d make this the date the invoice was generated but you may, by agreement with the customer, make it a different date. An example of when you might back-date an invoice is if you supplied the goods several weeks before the invoice was generated. Having said that, most account departments will ‘start the clock’ from the day they actually received the invoice. After all it’s probably not their fault that you were late getting the invoice out.

Unique invoice number

In the UK you can use pretty much any invoice number you like as long as it’s unique UNLESS you’re VAT registered. I’m afraid if you’re VAT registered then you probably need to use a sequential invoice number. This generally makes life awkward but hopefully once you hit the VAT threshold you can pay someone to do your book-keeping for you.

My favourite invoice numbering system

My favourite format for invoice numbers is to use the date in reverse followed by a unique identifying letter (starting with ‘A’). For example:

  • For a self-employed invoice dated 1/6/19
  • The invoice number would be 190601A

If you generate more than one invoice on 1/6/19 then the second one would be 190601B followed by 190601C etc. This system has a number of advantages:

  • The customer can’t tell you’re a fledgling business just by looking at the invoice numbers you’re using
  • The customer doesn’t know how many other customers you’ve invoiced since their last invoice
  • It makes file management an absolute doddle since it’s really easy to sort invoices in chronological order
  • It’s very easy to ensure the invoice number is unique, unless time travel has been invented by the time you read this
  • Just by glancing at the invoice file name you immediately know the invoice date

The only real disadvantage, other than the stupid VAT thing, is that it’s a fairly manual process to generate these invoice numbers. That shouldn’t matter for start-ups and micro-businesses though.

Your business details

Make sure you include all of your obvious business details such as:

  • Your company name & logo
  • business address
  • telephone number
  • e-mail address
  • web address

Description and price of work carried out

How much detail you include on the self-employed invoice is up to you. If possible try to include a brief description of the work carried out or details about the products sold along with the supply date and any other pertinent information. You might want to cross-reference to quotations provided, e-mail conversations or completed tender documentation. Succinct and unambiguous is the order of the day. If possible include a ‘quantity’ and ‘unit cost’ field and let the line-total calculate itself automatically.

Total amount due

If you use the template mentioned above, the grand total amount will be calculated automatically for you. Just make sure you are showing a grand total. If you miss this off your invoice will almost certainly be delayed or rejected by the receiving party.

No VAT to pay

Assuming you’re not VAT registered, it’s a good idea to include the line ‘No VAT to pay’ somewhere on your self-employed invoice. Otherwise VAT registered businesses might get confused about whether the ‘grand total’ is ex-VAT or inc-VAT.

Self-employed invoice payment terms

This is a big topic in itself. You really, really should include payment terms on your invoices. If you don’t then expect the receiving company to take a LONG time (if ever) to pay you. There’s also all sorts of other consequences of not having payment terms on your invoices.

One thing to bear in mind, don’t be bullied in to having bad payment terms. Ideally you want to be paid immediately to keep the cash flow running. This probably won’t wash with most businesses. Having said that, most bigger companies will immediately put you on a default 30 days terms. If you’re not happy with this, speak to their accounts department and negotiate better terms. Preferably before you’ve done any work. Absolute worst case you can always walk away. Sometimes this is better than being used as an extended credit line for a conglomerate. Bad cash flow can kill young businesses so be really careful here.

E&OE on a self-employed invoice

This means Errors and Omissions Excepted. It’s a fairly standard thing to put on invoices and other formal documentation (e.g. quotations) and it basically means “If I’ve made a mistake on this invoice you can’t hold me to it”. I have no idea whether there’s ever been a successful court case as a direct result of putting this on an invoice, but everyone does it and it seems like a pretty good idea.

Terms and conditions

Again, this is a HUGE topic. As a start-up you probably don’t even have any terms & conditions but you will quickly learn that they’re vitally important. There needs to be consequences for not being paid on time and references to limit your own liability. Seek legal help and sort some decent T’s & C’s as soon as possible. Then refer to them everywhere.

Payment methods & bank details

It’s a good idea to include your preferred payment methods and bank details on your invoices. You don’t want to give the receiving accounts department any excuses for delayed payments.

Purchase order number

This isn’t really applicable if you’re dealing with end-consumers. However, if you’ve been given a purchase order number (often called a PO number) to use by a business customer then make sure you show this on your invoice! The PO number is generally used to cross reference a pre-approved financial spend and without it your invoice will either be rejected or delayed. We’ll talk more about purchase orders in a separate article.

What about payments in advance?

If you want paid in advance of products or services being delivered then you’ll probably want to make use of a PRO FORMA INVOICE instead of a normal invoice. We’ll cover this in a separate article since it’s quite a big subject. We’ll also cover credit notes and receipts separately.

Member Downloads

If you’re a website member you can download a sample invoice and quote template. This might be handy if you’re just getting started.

On both of these I’m using what I think is the best invoice / quote numbering system around – it’s basically the date in reverse (YYMMDD) followed by a letter (A,B,C etc.). At some point I’ll make a vid about why this works so well. Or you can just use consecutive numbers if you prefer (required for VAT). Downloads are in Excel or Open Document format.

Invoice Templates

Quote Templates

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