Invoice requirements for businesses in the UK 2024
Samir Kamnani
·June 24, 2024
Whether you’re operating a business in the United Kingdom, or working with customers based in the UK from another country, it’s important to maintain proper records when it comes to requesting and recording payments from customers. In some cases, that means issuing invoices for your customers’ orders.
In this article, we’ll cover what you need to include in your invoices for UK customers, and why invoicing matters.
What is an invoice?
An invoice is a bill for products or services rendered, and is typically used in any situation where a customer does not process payment upfront, as well as any situation involving a business-to-business transaction.
Invoices clearly outline the terms of the transaction, including the payer, the payee, the items being sold, the cost per item, and any additional taxes or surcharges. They also include a due date for payment and any accepted forms of payment.
Invoices are important for creating a record of a transaction, and can be used to show proof of payment due if there are any disputes around the transaction. Invoices can be sent either via mail or electronically, using a secure e-invoicing software solution.
Invoicing for D2C sales
Invoicing is not generally required for direct-to-consumer (D2C) sales, but may apply in certain circumstances.
As a D2C ecommerce business, you’ll likely charge customers immediately upon purchase. Their total bill will appear in their shopping cart, and once the transaction has been confirmed, you’ll send a receipt for their purchase. The receipt serves as their proof of purchase, and includes their options for returning or exchanging products. In these cases, an invoice is not required.
However, invoices may be used in transactions where the customer has been granted a window of time for making payment, such as:
- Offline payment options
Some customers cannot or prefer not to pay by credit or debit card, and would prefer to make arrangements to pay via mail, phone, SMS, or in-person at a physical location. In this case, you can issue them an invoice for their total with their total due and an invoice number. They can refer to the invoice number when they process the transaction via their payment method of choice, at which point you will approve delivery of their goods.
- Items payable on receipt
In other cases, you may even send customers their products before requesting payment. This may be the case in orders that have custom design needs that customers must approve, or for repeat customers who have already established a trustworthy payment history. In these instances, you can include the invoice in the package with their products, and they can process payment upon receiving them.
Invoicing for B2B sales
When selling to any other business, an invoice is always required.
If a business is registered for VAT, you’re legally required to issue an invoice for goods or services, even if they pay on demand. By issuing invoices, you can provide these businesses with a clear record of your transaction that they can include in their financial records for accounting. Once the business customer has paid the invoice, you can mark the invoice as paid, and issue them a receipt for the completed transaction.
The UK has strict record-keeping laws for VAT business invoices, mandating that you must maintain records of any invoices you have issued to customers for six years. You’ll also need to maintain records of invoices from suppliers that you’ve paid for the same period of time. You can review these government resources to learn more about the ins and outs of invoicing.
What to include on an invoice
When issuing an invoice to a customer, there are certain types of information that must be included for the invoice to be enforceable.
This includes:
– The date of the invoice
– Your business name and contact information
– Your business’ VAT registration number
– The customer’s name and contact information
– A unique invoice number
– Detailed description of goods or services provided
– Total amount due, including any applicable taxes and their tax rates
– Accepted payment methods (cheque, credit card, bank transfer, etc.)
Additionally, clearly stating your terms of payment, such as the due date and any late fees, can help avoid confusion and ensure timely payment. Typically, your customers will have a certain window of time before their payment is considered late: “net 14,” “net 30,” or “net 45” are common payment terms.
Why invoice records are important
By accurately recording and sending invoices to customers who require them, you’ll be able to ensure that you’re maintaining the financial documents you need at tax time or in the case of a financial audit. Additionally, in the case of a legal dispute where a customer does not pay an invoice, you’ll be able to use the invoice as evidence in a lawsuit, or may seek to recover your costs with the support of a collections agency.
Tracking your invoices in an accounting solution is also important for helping your business monitor cash flow and stay on top of when you can expect to receive upcoming payments. You’ll be able to monitor incoming invoice payments and get alerts when invoices are overdue. Set up your software to automatically send reminders at set intervals, and add a late fee if you have included this in your terms.
Accurate invoices will also help you easily track how much of the money you bring in is business income, as opposed to taxes that you must collect on the government’s behalf. You’ll be able to easily segregate the income and pay taxes promptly.
By automating your invoice process, you can reduce manual labour and maintain accurate records that help you monitor your business’ financial health.
Integrate your financial data for improved visibility
Choosing the right accounting software will help you streamline your business finances and make it simpler to keep track of the invoicing process. But to create a more holistic operational centre, it’s important to tie in your accounting tools with the rest of your ecommerce technology.
With a Shopify Plus integration to your accounting software, you can instantly create invoices for orders that require them, and ensure that payment is tracked automatically. Customise your storefront for international countries, so that your invoices include all of the legal elements required in each country you do business.
You’ll also be able to integrate your invoicing and sales data with your returns data through a UK returns management platform like Loop, which will help you understand your return-related expenses and how they impact your bottom line. With a well-integrated tech stack, you’ll have the data to inform strategic business decisions that will help you build a sustainable brand.
Want to see how Loop’s data insights can help you boost your bottom line?
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