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What is an invoice?

• 22 Dec 21


Business activities typically involve the supply of goods and/or services in return for payment. The flow of goods, services and payments forms the backbone of the world of commerce.

Invoices form a crucial element of the process that enables the flow of goods, services and money. An invoice is a commercial document that sets out the goods and/or services that a supplier provides to a customer, as well as the agreed prices for these goods and/or services.

The Importance of Invoices

In addition to documenting the terms of sale, it is typical for the issuance or receipt of invoices to trigger payment obligations as well. 

Functions of Invoices

In addition to being a legally binding document that shows consent to payment conditions and agreed upon pricings, an invoice does come with additional benefit and functions.

Maintaining records

Invoices act as a way to maintain records of sales, what was bought and when and by whom. 

Payment tracking

When it comes to the accounting aspect of a business, invoices are invaluable in order to keep track of what is owed to them. 

Legal protection

Invoices serve to protect both parties in terms of a set price. 

Tax filing 

By having recorded sale invoices, this helps the company to report it’s income and pay the correct amount of taxes. 

What Goes Into An Invoice? 

Given the importance of invoices in commercial activity, it is worth examining what should go into an invoice, to ensure that your commercial activities go according to plan. In this article, we examine 5 key items that should go into an invoice.

Item 1: Agreed upon deliverables and price

The key elements of a commercial transaction are the goods and/or services being supplied, as well as their agreed price. By way of best practice, the following information ought to be reflected:

● Where services are concerned, a precise specification of the services being supplied, as well as the time frame for which these services are supplied.

● Where goods are supplied, the specifications of the goods and their delivery charges (if relevant).

● Quantities of goods and services supplied.

● Total price

It is crucial to document such information in an invoice, as such documentation will provide an evidentiary record of parties’ agreement with respect to the commercial transaction, in the event of a dispute.

Item 2: Applicable Taxes

Various taxes may be levied on the import and/or consumption of goods and services. These may include value-added taxes (including goods and service tax), as well as certain excise duties.

While the supplier is often under an obligation to remit these taxes to the regulatory authorities, consumers are typically required to bear at least part of the costs of such taxes. These costs are typically passed from the supplier to the consumer through sums payable pursuant to the supply of such goods and/or services.

The sums payable pursuant to such taxes ought to be reflected in the invoice. It is also prudent to reflect how such sums payable are computed – they are computed usually as a percentage of the purchase price of the goods/services.

Item 3: Payment Terms

The right to receive payment remains hollow if there are no terms of payment. Terms of payment set out the rights and obligations of the supplier and customer with respect to payment, including the payment procedures that the customer is required to follow.

While payment terms are typically set out in the underlying sales contract between the supplier and the customer, it would be helpful to set out certain key payment terms in the invoice as well, for the customer’s ease of reference. These key payment terms may include:

● Payment deadline

● Currency for payment

● Bank account to remit payments to

Item 4: Dispute Resolution Procedure

The following might not appear in the invoice itself but it is important that the invoice be issued under a contract that deals with payment dispute scenarios. 

Sadly, there may be times where parties may dispute the information set out in an invoice. A customer may, for instance, raise a dispute on the price set out in an invoice on the basis that it was not what he/she had agreed to, or may raise a dispute with respect to the goods reflected on the basis that they were not what he/she had ordered.

Such invoice disputes are certainly not uncommon, given that they often arise from errors that human beings may commit on a regular basis. These errors may include administrative oversights and typographical errors.

Given the fairly common nature of invoice disputes, it is important for parties to set out an invoice dispute resolution mechanism that is both time and cost-efficient.

While a comprehensive set of terms with respect to the invoice dispute resolution mechanism is likely to be set out in the underlying sales contract between the supplier and the customer, it would be helpful to set out certain key steps in the invoice as well. These may include:

● deadline for customer to inform the supplier that it intends to dispute an invoice

● contact details of personnel to reach out to, in the event that the customer wishes to raise a dispute

● details that the customer is required to set out when raising a dispute

Item 5: Invoice Serial Number

A business is likely to undertake many commercial transactions over the course of its operations. It is important for each commercial transaction to be identified as quickly and as easily as possible to ensure the efficiency of operations.

The most common method that businesses adopt to identify transactions is to ascribe each specific transaction with its own unique serial number. This serial number ought to be set out in the invoice, for both the supplier’s and the customer’s reference, for a wide range of purposes, including:

● Facilitating the raising and resolution of invoice disputes

● Tracking whether payments have been received

● Customers claiming any benefits (e.g. cashback or future discounts)

We hope that this article has been helpful to you as a Startup trying to make headway in the complex world of commerce.

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  


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