As a small-business owner, you're already juggling countless responsibilities, from serving clients and managing your team to planning for growth. With so many demands on your time, it's easy to treat invoicing as an afterthought. But a streamlined, professional invoicing system helps establish your credibility, maintain healthy client relationships, and set your business up for sustainable success.
It’s not JUST about getting paid (though that's certainly important!).
In this guide, we'll walk through everything you need to know about invoicing for your small business—from the basics to invoice best practices and common pitfalls to avoid.
What is an invoice?
An invoice is a commercial document that records a transaction between a buyer and a seller. It's essentially a bill that requests payment for products delivered or services rendered. But a proper invoice does much more than simply ask for money. Invoices create a paper trail, establish payment expectations, and serve as an important record for your accounting and tax purposes.
Key components of a professional invoice
Every professional invoice should include these elements:
Your business information: Your company name, address, phone number, and email
Client information: Your customer's name, company (if applicable), and contact details
Invoice number: A unique identifier for tracking purposes
Issue date and due date: When you sent the invoice and when payment is expected
Itemized list of products/services: Clear descriptions of what you're billing for
Pricing details: Rates, quantities, and subtotals for each item
Payment terms: When and how you expect to be paid (Net 15, Net 30, etc.)
Payment methods: Options for how clients can pay you
Taxes: Any applicable sales tax or value-added tax (VAT)
Total amount due: The final sum to be paid
Think of your invoice as a communication tool that sets expectations and provides clarity for both you and your customers when it comes to your payment process.
Why invoicing matters for small businesses
You might be wondering if a formal invoicing process is really necessary, especially if you're a solopreneur or running a very small operation. The short answer? Absolutely. Here's why:
Maintaining healthy cash flow
Cash flow is the lifeblood of any small business. Without a consistent flow of money coming in, it becomes impossible to pay your expenses, invest in growth, or even keep the lights on. Proper invoicing helps you to get paid in full and on time, while maintaining the cash flow your business needs to thrive.
When your invoicing process is disorganized or inconsistent, payments tend to be equally unpredictable… and that's a recipe for financial stress. By creating a systematic approach to invoicing, you're building a more reliable and consistent revenue stream.
Building professional client relationships
The way you handle money matters speaks volumes about your business. Professional, clear, and consistent invoices signal to your clients that you're organized, detail-oriented, and serious about your work. This level of professionalism can actually impact how clients perceive your business and whether they choose to work with you long term.
Would you rather work with a vendor who sends polished, easy-to-understand invoices on a predictable schedule, or one whose billing practices are confusing and erratic? Yeah, your clients feel the same way.
Legal protection and compliance
Invoices are financial documents, but they're also legal records. In case of disputes or audits, proper invoices provide proof of transactions and agreements between parties. They also help you stay compliant with tax regulations by documenting your business income.
Without a paper trail of properly formatted invoices, you could find yourself in hot water during tax season or struggling to collect on unpaid work if disagreements arise.
How to create an invoice
Now that we understand why invoicing matters, let's talk about how to create invoices that get you paid promptly while maintaining professional relationships with your clients.
Step-by-step invoice creation
Choose your format: Decide whether you'll use invoicing software, a template, or create your own design
Add your business details: Include your logo, business name, and contact information
Insert client information: Add your customer's name and relevant contact details
Create a unique invoice number: Establish a numbering system that works for your business (sequential numbers, date-based codes, etc.)
Set the date and payment terms: Clearly mark when the invoice was issued and when payment is due
List your products or services: Include detailed descriptions of what you're billing for
Add pricing information: Include rates, quantities, and subtotals
Calculate taxes: Add any applicable sales tax or other taxes
Specify payment methods: Clearly state how clients can pay you
Include your payment terms and late fee policy: Be explicit about when payment is expected and what happens if it's late (such as adding a fee based on a percentage of the total amount)
Add a personal touch: Consider including a thank-you note or other personalized message
Templates and software options
You don't need to reinvent the wheel each time you create an invoice. Many small business owners use:
Accounting software: Programs like QuickBooks, FreshBooks, or Xero offer built-in invoicing features
Dedicated invoicing apps: Services like Wave and Invoice2go focus specifically on invoicing
Office software templates: Microsoft Office, Google Docs, and Apple Pages all offer invoice templates
PDF generators: Tools like Adobe and Canva create professional PDFs from your custom designs
Banking platforms: Business banking platforms like Relay let you create, send, and track invoices right where your money already lives, no extra tools needed.
The right choice depends on your business volume, budget, and specific needs. If you're just starting out, a simple template might be enough. As you grow, investing in software that integrates with your accounting system could save significant time and reduce errors.
Relay is a financial technology company and is not an FDIC-insured bank. Banking services provided by Thread Bank, Member FDIC. FDIC deposit insurance covers the failure of an insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply.
Best practices for sending invoices
Creating the invoice is only half the battle. How and when to send invoices to clients can significantly impact how quickly you get paid.
Timing is everything
The golden rule of invoicing timing? Send your invoice as soon as the work is complete or products are delivered. The longer you wait to bill, the longer you'll wait to get paid. Plus, when the project is fresh in your client's mind, they're more likely to process your payment quickly.
For ongoing services or retainer relationships, establish a consistent billing schedule (whether that's weekly, bi-weekly, or monthly) and stick to it religiously. Your clients will appreciate the predictability, and your cash flow will benefit from the consistency.
Clear payment terms
Vague payment terms lead to delayed payments. Instead of writing "due upon receipt" (which can be interpreted as "pay whenever"), specify a concrete timeframe:
Net 15: Payment due within 15 days
Net 30: Payment due within 30 days
Due within 7 days of receipt
Whatever terms you choose, make them explicit and consistent across all your invoices.
Digital delivery and follow-up
Email is typically the most efficient way to deliver invoices. Consider these best practices:
Use a professional, clear subject line (e.g., "Invoice #1001 from [Your Business] - Due [Date]")
Include a brief, friendly message in the email body
Attach the invoice as a PDF (more professional and harder to alter than Word docs)
Request a read receipt if your email platform offers this feature
For clients who consistently pay late, consider a polite follow-up system:
Payment reminder 3 days before due date
Friendly check-in on the due date
Follow-up 3 days after the due date
Final reminder 7 days past due
Leveraging Automation
As your business grows, manually creating and sending invoices becomes increasingly time-consuming. This is where automation becomes your best friend. Many invoicing platforms can:
Automatically generate recurring invoices
Send payment reminders
Track when invoices have been viewed
Process payments automatically
Update your accounting records
The time you save through automation can be reinvested in growing your business or serving your clients—a much better use of your valuable hours than chasing payments.
Managing Invoices & Payments
Creating and sending invoices is just the beginning. A strong invoicing system also includes strategies for tracking, following up, and maintaining records.
Tracking Outstanding Invoices
It's important to have a system for monitoring which invoices have been paid and which are still outstanding. Without this visibility, you risk forgetting about unpaid invoices or accidentally double-billing clients, neither of which contributes to healthy business relationships.
Consider implementing:
A spreadsheet or dashboard that shows all outstanding invoices
A color-coded system to flag invoices based on their status (paid, pending, overdue)
Weekly reviews of your accounts receivable (AR)
Following up on late payments
Even with the best invoicing system, you'll occasionally encounter late payments. Having a standardized follow-up process helps you handle these situations professionally.
Start with a gentle reminder. Assume the invoice was overlooked rather than deliberately ignored. If that doesn't work, escalate gradually with increasingly direct communications. Throughout this process, maintain a professional tone. Burning bridges, after all, rarely serves your long-term business interests.
For chronically late-paying clients, consider implementing:
Upfront deposits before beginning work
Stricter payment terms
Late fees (be sure these are clearly outlined in your contracts)
Automatic payment options to eliminate the need for manual payments
Recordkeeping for taxes and bookkeeping
Your invoices are essential financial records for your business. Establish a system for organizing and storing all invoices, both those you send and those you receive from vendors.
At minimum, keep records of:
Copies of all sent invoices
Payment dates and methods for each invoice
Any communications regarding payment disputes or arrangements
Documentation of late fees or discounts applied
Most accounting software can handle this automatically, but it's still important to understand what records you need and why they matter for tax compliance and financial management.
Common invoicing mistakes (and how to avoid them)
Even experienced business owners can fall into invoicing pitfalls. Here are some common mistakes and how to avoid them:
Missing or incorrect details
Incomplete or inaccurate invoices are often a big cause of payment delays. Double-check that every invoice includes:
Complete contact information for both parties
Accurate item descriptions and prices
Correct tax calculations
Clear payment instructions
Pro tip: Create an invoice template with all the standard information pre-filled, so you only need to add the variable details for each new invoice. This reduces the chance of omitting important information.
Unclear payment terms
Ambiguous terms create confusion and delay payments. Instead of vague language like "payment appreciated promptly," be specific about:
Exactly when payment is due
Acceptable payment methods
Any late fees or early payment discounts
Currency (especially important for international clients)
Inconsistent formatting
Switching invoice formats or numbering systems makes it difficult for both you and your clients to track and reference past transactions. Establish a consistent:
Invoice design and layout
Numbering system
Filing method
Delivery process
Not following up
Many small business owners feel uncomfortable following up on unpaid invoices. Just remember, you did the work and delivered value—you deserve to get that coin. Create a systematic follow-up process that kicks in automatically when invoices become overdue, removing the emotional aspect from payment collection.
Invoicing tools & software for small businesses
The right tools can turn invoicing from a dreaded chore to a streamlined process that supports your business growth.
Popular invoicing options
The market offers solutions for businesses of all sizes and budgets:
For solopreneurs and microbusinesses:
Wave (invoicing and accounting)
PayPal Invoicing (pay-per-use)
Square Invoices (integrated with payment processing)
For growing small businesses:
QuickBooks Online
FreshBooks
Xero
For established businesses with complex needs:
When evaluating options, consider:
Cost structure (monthly subscription vs. pay-per-invoice)
Integration with your banking and accounting systems
Mobile capabilities for on-the-go invoicing
Customer support availability
Scalability as your business grows
Benefits of integrated financial tools
While standalone invoicing tools can work well, there are significant advantages to using financial tools that integrate invoicing with your broader business banking and accounting systems:
Automatic reconciliation of payments with invoices
Real-time visibility into your cash flow
Reduced manual data entry and potential errors
Comprehensive financial reporting
Simplified tax preparation
Integrated platforms like Relay combine business banking with powerful money management features, giving you a holistic view of your finances while streamlining processes like invoicing and payment collection. This integration becomes especially valuable as your business grows and your financial management needs become more complex.
Streamline your invoicing and get a complete view of your finances by requesting a demo of Relay today.
Relay is a financial technology company and is not an FDIC-insured bank. Banking services provided by Thread Bank, Member FDIC. FDIC deposit insurance covers the failure of an insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply.
Frequently asked questions
What's the difference between an invoice and a receipt?
An invoice is a request for payment that you send before receiving money. A receipt is confirmation that you've received payment, sent after the transaction is complete. Both are important documents, but they serve different purposes in the payment lifecycle.
Do I need to charge sales tax on my invoices?
It depends on several factors:
What you're selling (products vs. services)
Where your business is located
Where your customer is located
Your sales volume
Sales tax requirements vary significantly by state and locality. Consult with a tax professional to ensure you're compliant with all applicable tax laws in the jurisdictions where you do business.
How do I deal with recurring payments?
For clients who pay the same amount on a regular schedule:
Set up recurring invoices in your small-business invoicing software
Consider offering auto-pay options via ACH or credit card
Provide incentives for clients to prepay for multiple billing cycles
Clearly document the recurring payment schedule in your initial agreement
Recurring payments can significantly improve your cash flow predictability while reducing your administrative workload—a win-win for both you and your clients.
Conclusion & next steps
Effective invoicing is far more than a mere bookkeeping task. Invoicing is actually a critical business function that impacts your cash flow, client relationships, and overall financial health. By implementing the strategies and best practices outlined in this guide, you can transform your invoicing process from a potential bottleneck into a powerful tool for business growth.
Your invoicing system should evolve as your business grows. What works for a solopreneur might not be enough for a business with multiple employees and dozens of clients. Regularly review your invoicing processes to ensure they're still serving your needs.
The time you invest in optimizing your invoicing today will pay dividends through faster payments, better client relationships, and reduced administrative headaches tomorrow. Your future self (and your bank account) will thank you!
Explore Relay’s all-in-one money management tools that integrate invoicing with your broader business banking needs, giving you more visibility and control over your cash flow.
Relay is a financial technology company and is not an FDIC-insured bank. Banking services provided by Thread Bank, Member FDIC. FDIC deposit insurance covers the failure of an insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply.
