Online Invoicing for Small Businesses: Brief History & 5 Essential Invoices You Need

Findings reveal that 27% of small and midsized businesses (SMBs) admit that they have a hard time creating and sending invoices, let alone tracking them.

As per a HubSpot survey of 400 SMBs, 49% have a hard time following up on late payments, and 46% find it difficult to receive their payments on time.

It’s no secret that small business owners wear several hats, but sometimes this can be overwhelming. While they’re supposed to focus on the strategic and money-making aspects of the business, they often find themselves taking care of manual tasks that can easily be automated. One such time-consuming task is invoicing.

One may say that invoicing is crucial to getting paid for the products/services provided, business owners need to realize that time is money. There is no money to be made for the time spent on creating, sending, and organizing invoices.

It is best to automate invoicing jobs to not only save precious hours, but also streamline the process, make it error-free, and ensure quick payments. You can put different types of invoices to use for your various business payment needs. Meanwhile, you can take care of business activities that help you rake in additional revenue or attend to your customer needs.

Invoicing should never feel like a hassle or slow down small business operations. If you think it’s hampering your productivity, using online invoicing software can help. It will improve your experiences with your clients in these ways:

  • Provide Accurate Estimates before Invoicing

You can proactively prevent the chances of answering verification questions and addressing disagreements with your clients at a later stage by creating professional-style invoices with the help of small business invoicing software. Using its templates will ensure that both, you and your clients are clear about the entailments of the project and associated costs even before starting work on the project.

These type of invoices can also help you detail your payment terms and establish a healthy work environment right from the project’s inception. This, in turn, will ensure that you don’t have to spend hours going through agreement terms and conditions over and over again to answer clients’ queries.

  • Add Specifics and Branding Standards

Your invoices should help you get easily identified by your clients, so establishing strong brand standards is necessary. They should also emphasize your brand’s values consistently in all your communications.

Certain important specifications should be mentioned in every invoice that is created for better organizing. It helps to have a numbering system in place so you can assign a unique number/code to each invoice for easy tracking. Your invoices should also specify your contact details such as your office address, email ID, and phone numbers.

Moreover, make sure the specifications mentioned cover the terms and conditions of the completion of the work and the payment. Even though these figures and stipulations are included in the written agreement/contract, your invoices should reinforce them to the client as and when they are issued.

Purpose of Invoicing

Businesses send sales invoices to their clients after providing them with goods or services. The invoices serve as either written or electronic documentation of the transaction between the business and the client. It is crucial that businesses maintain a record of all the sales they make to protect their interests in case a dispute arises in the future.

The purposes of invoicing include:

  • Record Keeping

One of the primary purposes of invoicing is to chronicle your sales figures accurately. It is an efficient way to track specific details such the date on which the product was sold, the price that was paid for it, as well as any outstanding debt. Further, an invoice it also aids the process of accounting while monitoring the performance of employees that makes sales and the items they sell.

  • Tax Calculations

More often than not, governments do not formulate a set system or template for the type of invoice businesses should use. However, all business are required to pay certain taxes, which is why invoicing tools become useful in recording cash inflow. It is always a good idea to maintain an ongoing summary of all business transactions with the help of invoices. This comes in handy at the time of filing taxes and ensuring that the precise amount is paid to avoid audits.

  • Legal Considerations

Online invoicing systems help shield small businesses from fraudulent and petty civil lawsuits. The details mentioned in the invoice make it clear that a particular item/service was provided at a certain time. An invoice with the client’s signature is extremely valuable as it serves as evidence of an agreement between the business and the customer. In the absence of an invoice, there will be no record of a sale, which makes businesses susceptible to facing price-related conflicts.

  • Gain Marketing Insights

Business owners need to closely monitor all sales invoices to use the information for targeting its customer base and marketing to them. This includes data such as dates of sales, frequency of sales, products sold, and the selling price of the products. CRM software or marketing professionals can use this information to gain insights on customer demography, peak purchasing times, preferred products, and more. This proves valuable when creating marketing strategies.

  • Inventory Management

Using well-designed invoices for small business can be beneficial to buyers as well as sellers as they help with managing inventory. Whether you employ an automated inventory system that adds and removes items as you receive and sell them respectively or use the traditional paper-and-pen method to manage information about your available stock, an invoice is a valuable document. Sellers can track details about the products that are sold and shipped, while buyers can track the products that are received and stocked.

  • Information Sharing

Invoices for small businesses present all the product and sales-related information in a systematic manner wherein the total price is broken down systematically and explained. It also reflects charges levied for services as well as labor. Other details include the date and time of the purchase, taxes applicable, total product price, date sent, the due date for payment, and seller and buyer information.

From Traditional to Modern: The Invoicing Journey

As far as modern businesses are concerned, invoicing tools have been gaining momentum as they streamline and simplify receiving payments. However, the practice of recording the rendering of products and services as well as the consequent transactions is being followed since the last 5000 years.

Before the modern invoicing and billing software for small businesses came along, other methods were used. It began thousands of years ago in ancient Mesopotamia in a region that corresponds to modern Iraq. In the earliest recorded forms of invoices, sellers created IOUs (abbreviated from the phrase “I owe you”) on cards made from clay.
Given the technological advancements in the times we live in, sending invoices on paper, email, and PDF have also come to be considered as primitive methods.

Let’s take a look at how invoices have evolved over the centuries.

earliest invoices

3300 BC: This image depicts one of the world’s earliest invoices, which came in the form of clay tablets. Inscriptions on it were made with the help of a writing system called cuneiform.

Philip I of Castile invoiceSource: Wikimedia Commons

1504: This image shows an account of a £36 down payment made by Philip I of Castile when he bought a painting of the Last Judgment (Paradise and Hell).

invoice for products

1780: The above image shows an eighteenth-century invoice for products purchased for a funeral. Items include coffin, furniture, and more.

earlier invoices

1870: This image shows a document created by the director of the Sistine Chapel choir. They charged 67 francs and 50 centimes for six lessons plus the sheet music.

earlier invoicesSource: British Library

1891: This is a seventeenth-century invoice for Dutch sea charts which were bought by the British Library.

earlier invoices Source: The Coopered Tot

1904: This is an early twentieth-century invoice from the renowned Graham Distillery Company.

earlier invoices

Source: Wikimedia Commons

1935: This is what the price list for bow and arrows in Belgium looked like.

earlier invoices

Source: Wikimedia Commons

1942: This is an invoice for American painter, Ed Hopper’s Nighthawks from the Chicago Art Institute.

earlier invoices

Source: Wikimedia Commons

1976: This image shows the oversized IBM printing machine model 3800. It was first used for large-scale document printing such as invoices and mailing labels.

earlier invoices


1981: Seen above is an invoice for a disk drive meant for the Atari 800, which was among the first personal computers to go on the market.

earlier invoicesSource: DiCentral Corp.

2003: The above image is a screenshot of a Walmart invoice. This is how the typical ERP-powered invoicing solutions looked like (and maybe still do), although offices did need to carry out a certain amount of supporting paperwork.

cloudbooks invoice
2013: E-invoicing software became a total game changer and simplified the invoicing process.

Many businesses create invoices on programs such as Microsoft Word and Excel. Templates for creating such invoices are easily available online. All you need to do is download one, fill out the required data fields, and email it. You can also print the invoice and send it to the client via snail mail. However, this can be extremely tedious and time-consuming for a growing business, especially if you’re required to repeat the same process frequently.

Further, it is also an error-prone process. From entering the wrong numbers to accidentally deleting certain details and messing up the alignment, the scope for going wrong is immense.

For these reasons, online invoicing tools are gaining increasing popularity among small businesses. Not only are they easy to use, they also allow users to create different types of invoices in a matter of seconds.

Invoicing software for small businesses is more efficient and convenient to work with for the following reasons:

  • Automation: Online invoice software automates necessary processes that make invoicing easy and efficient. This includes sending automatic payment reminders for unpaid bills to the concerned parties.
  • Quicker Payments: The invoice format used by invoice software results in a professional design. It includes all the necessary information which is conveyed clearly to customers to enable faster payment.
  • Innovative Built-in Tools: Crucial data related to products, customers, prices, and taxes is securely stored by invoice software. This enables businesses to prepare an invoice with only a few clicks.
  • Mobility: Because all data is stored on the cloud, it doesn’t matter where you access it from. Whether you want to work with it at your desk or when on the go, online invoicing empowers you to easily view and manage your invoices. Further, you’re equipped to perform transactions through your mobile devices.

The Cost Conundrum

An increasing number of businesses are switching from paper-based invoicing methods to online electronic methods. However, several emerging businesses continue to employ paper-based invoices and billing systems along with outdated payment processing procedures. This can prove to be expensive, inaccurate, monotonous, as well as extremely time-consuming.

A research by Sterling Commerce revealed that (on average) the rectification of every paper invoice error costs companies $53.50.

The same study also found that “manually-processed invoices cost, on average, $30 per invoice to process, while fully-automated invoices average only $3.50 per invoice to process.”

In modern times, an online invoicing system is more suitable as it is cloud-based and makes it possible for businesses to create and send multiple invoices simultaneously over the internet. Such a system, therefore, helps cut costs and speed up the billing process.

If you’re still using a paper-based invoicing system, the following few factors could be burning a hole in your business’s pocket:

  1. Cost of preparing and printing paper invoices
  2. Cost related to storing paper invoices
  3. Fees for postage and shipping
  4. Fees for offering payment options such as debit and credit
  5. Costs associated with undelivered bills or lost invoice and time
  6. Costs related to handling customer calls and answering questions about the invoices

“Below is an infographic that will tell you everything about online invoicing and its global impact. Also, why small businesses should start going paperless and how it will help them with faster and timely payments while saving money.”

infographic e-invoicing

The Emergence of Online Invoices

If you haven’t already ditched the paper-based invoicing system and adopted online invoicing, here are a few undeniable reasons to do so right away.

  • Bid Adieu to the Challenges of Paper Invoices

As established above, paper-based invoicing process takes time, effort, and money. With an online invoicing system, you can reduce expending valuable resources on all these fronts and optimize your accounts payable functions. When it comes to storing invoices, sending automated reminders through electronic invoices will leave a trail that is easy for you and your customers to refer when needed. This means lesser clutter and smaller mess at the workplace with no need for filing paperwork.

  • Enhance Process Automation

Thanks to technological innovations, businesses have become capable of transforming their processes to collaborate, communicate, administer, and operate better, regardless of the time and location. Online invoicing can not only make process convenient and accessible, but also allow you to leverage your mobile devices to run your business by sending you timely alerts, updates, reports, notifications, and more.

  • Improve Cash Management

When the economic conditions are tough, which is the case among most small businesses, you need to focus on cutting costs. The importance of optimal cash management cannot be overlooked. Whether it is receiving timely or late payments or recording details about your invoicing expenses, an online invoicing system can help you keep everything sorted.

  • Facilitate Quality Assurance

Sending low-quality and erroneous invoices to clients will ruin your image and they will probably stop taking your business seriously. This may result in late or no payments, which is the last thing you want. Having an online invoicing system in place will prevent this by:

  1. Verifying and organizing supplier data
  2. Confirming the number work on the invoice
  3. Ensuring the invoice is in accordance with the order, receipt, and contract
  4. Assigning to cost centers
  5. Generating correct tax statements
  • Embrace a Green Initiative

We live in times when clients want to be associated with socially responsible companies. Moreover, going green is great for our planet and future generations. Creating less paper invoices and storing files electronically will enable you to do your bit to try and make a much-needed difference to the ecology.

Setting up the Online Invoicing Process to Make the Most of It

Mentioned ahead are a few things to keep in mind to fully reap the benefits of an online invoicing system.

  • Ensure Proper System Setup: Every client you transact with should be assigned a unique numeric code and all invoices sent to clients should include their own respective number.
  • Be Regular with Sending Invoices: Regular billing is key to receiving timely payments without attracting disputes.
  • Mention Penalty for Late Payment: Doing so will keep the clients alert to not miss payments and send them on time.
  • Generate Important Reports Frequently: Whether you need instant or customized reports for a quick glimpse into your business affairs, you can generate all necessary reports whenever needed to stay on top of your business’s financials.

Advantages of Electronic Invoices

Because the online invoicing process is automated, buyers, sellers, and administrators stand to gain a number of strategic and operational benefits. The ability of the invoice software to integrate with other business applications allows businesses to improve efficiencies and revenue-creation capacity.

Apart from benefits such as cost reduction, time saving, and dispute avoidance, e-invoices offer several other advantages.

Advantages for sellers:

  • Quicker and more accurate payments
  • Enhanced productivity
  • Reduced likelihood of invoice rejection
  • Better accounts reconciliation
  • Enriched cash management
  • Improved customer relationships
  • Creation of professional-looking invoices

Advantages for buyers:

  • Augmented accuracy
  • Better productivity
  • Accelerated payment cycles and processing
  • Improved accounts reconciliation
  • Enhanced cash management
  • Decreased likelihood of fraud, disputes, and other payment-related issues
  • Better supplier relationship management

Advantages for business administrators:

  • Enhanced business branding and awareness
  • Optimal use of business capital
  • Ensured compliance with industry and legal norms
  • Improved relationships with customers and suppliers
  • Optimized IT system
  • Eco-friendly initiative

Different Types of Invoices: 5 Essentials for Small Businesses

Here are the five essential types of invoices that every small business needs.

1. Pro Forma Invoice

A pro forma invoice is different from a regular price quotation in that it is a binding agreement. However, the terms and conditions of the sale are subject to change. They’re helpful in streamlining the sales process by minimizing back-and-forth post a sale going through, as all mentioned terms are agreed upon by all parties involved.

It, therefore, is a document of good faith estimate to prevent the buyer from incurring unforeseen and substantial charges upon the finalization of a transaction.

The purpose of the pro forma invoice is to provide the buyer with an exact sale price. This invoice includes estimates of fees or commissions, applicable taxes, and shipping costs if any. Businesses from almost every industry use pro forma invoices to complete their internal purchase-approval process.

A business may send a pro forma invoice either prior to shipping the products or at the time of shipping them. While the invoice does contain the exact cost and the details of the sale, it is not considered an official demand for payment. There are no guidelines in place that dictate a precise format of a pro forma invoice. It may or may not be similar to other commercial invoices in its presentation.


You may have visited a designer boutique and agreed to the price of a garment on a pro forma invoice. The designer will deliver the garment once it is ready. You will pay the designer once the invoice is received. The final amount on the invoice will be the same as or around the same amount as mentioned in the pro forma invoice.

2. Interim Invoice

An interim invoice allows breaking down payments for a huge project into multiple small payments. The time of making the payment corresponds to the completion of a predetermined portion of the project. This type of invoice covers that amount of money and helps with regulating cash flow for large-scale projects.

Big projects make higher expenses in terms of material, labor, and additional operating costs. Interim invoices help small businesses manage their expenditures when undertaking high-volume jobs. You need not wait until the completion of the project to receive payments. You can use the money received from interim invoices to pay off some of the costs you incur.

This kind of invoice is commonly used when you want to post multiple invoices for a client job.


You may perform some accounting work for Johnson HVAC technicians. You might start the work in January 2018 and estimate that the job will be completed by December 2018. You decide to invoice the client $100 per month.

If you use interim invoice, you will have to post interim invoices for $100 for every month between January 2018 and November 2018, bringing the invoice total to 11, and the amount total to $1100.

Your time ledger shows $1500 of staff time. The interim invoices will show 11 different postings of $1100, thereby reflecting a net WIP balance of 400. The interim invoices will show as “credits on account” and will not be coordinated with any amount of time.

By using an interim invoice, you have the advantage of being able to see all staff posting that has not been billed and all the invoices sent to the client so far when November ends. You will also be able to view the current WIP balance owed to you, which may help you make a more informed billing decision.

Once December arrives, you complete the job and are ready to bill the client. You see that you’ve spent $1500 on staff and have invoiced the client $1100. Consequently, you may decide to invoice the client $1800, thereby making a profit of $300. You can also reduce the client’s WIP and clear all posted interim invoices.

For this, you will need to post a final bill of $700 ($1800 less $1100 is $700). You can post a write out to the value of $1500 as that would be the current balance, and your aim is to get the value down to $0 ($1500 less 0 is $1500). The final bill is used to finalize (or clear) all interim invoices posted to the client’s account so far.

3. Past Due Invoice

A past due invoice serves as a reminder to the client that they haven’t paid up yet and should act to settle the due payments. Sometimes, the client fails to pay you in accordance with the due date on the final invoice. When this happens, you may send them a past due invoice immediately after payment becomes late.

The main purpose of a past due invoice is to remind clients that their payment due date has passed. When preparing this invoice, make it a point to mention all the information from the final invoice, including penalties that late payments will attract.


You want to overlay your driveway, so you buy large quantities of gravel and a couple of pallets from a hardware store. The purchase agreement mentions a payment term of two weeks from the delivery date.

The hardware store delivers the supplies the next day, thereby completing its contractual obligation. It now has the right to collect the purchase price from you. In this way, a debt relationship is established, with you as the debtor and the hardware store as the creditor.

If the debtor does not provide the contractually agreed upon payment before or by the due date as mentioned in the agreement, then the creditor can demand it upfront.

4. Recurring Invoice

Issuing a recurring invoice makes sense when invoicing for ongoing services. It is most suitable for payments of the same amount, like a subscription.

When you set up recurring invoices, your invoices get sent to your customers automatically. You need not bother with setting reminders or copying data from an old invoice to a new one every time you need to send them out. This arrangement allows you to focus your time and attention towards other strategic business activities while your invoicing takes care of itself.

If the product or service you provide requires you to send out invoices with the same details to clients on a regular basis, you need to use recurring invoices. A few types of businesses that use recurring invoices are:

  • Service providers, like plumbers and electricians, who bill for a fixed number of working hours every month.
  • Providers of monthly service packages. For example, a digital marketing agency that provides a set number of content and implements SEO services for its clients.
  • Providers of maintenance plans for products. For example, technology companies that digitize company processes with the help of their trademark tools and technologies. Integration with legacy systems and constant updating of business-critical applications will need their monthly support. Another example is that of a gardening service provider that attends to the client’s garden on a weekly basis.
  • Providers of educational material and online training resources such as long-term online learning and refresher courses offered by educational and training institutes.
  • Providers of services that require membership or subscription. This could be a one-year subscription to a magazine or fees for a 10-year club membership.
  • Software providers who charge a license fee every month to allow the use of their products.

Typically, when a recurring invoice is used, customers avail services at regular intervals without performing any additional action. When the agreed-upon term ends, the customer can either extend or terminate the alliance.

5. Credit Memo

A credit memo or a credit memorandum is a document that is issued by the seller of products or services to the buyer to decrease the amount the buyer owes to the seller under the terms of an earlier invoice. Typically, the credit memo clearly mentions the reason for the amount stated on the memo that has been issued. This comes in handy at the time of gathering information about credit memos and figuring out the reason for their issuing by the seller.

This document is commonly issued when the buyer wants to return purchased goods to the seller, or when there is a pricing issue, a marketing allowance, or any other reason where the buyer should not pay the seller the amount as mentioned in the invoice. The seller makes of a note of the credit memo as a reduction of the accounts receivable balance. The buyer, on the other hand, notes it down as a reduction in the accounts payable balance.

When using a credit memo, the seller will do well to review the open credit memos at the end of each reporting period to check the suitability for linking to open accounts receivable. When this is done, it lowers the average amount of outstanding invoices, and can also decrease payments to suppliers.

In case the payment from the buyer and seller is pending, the buyer can use the credit memo as a partial offset to the invoice-based payment to the seller. But if the buyer has made the full payment as mentioned on the invoice, he/she has can use the credit memo to either uses the credit memo to offset a future payment or demand cash payment in exchange for the memo.
An internal credit memo is created when the buyer is not sent a copy of the invoice. This is done when a business is writing off an outstanding receivable balance.


You purchased some clothes from a fashion clothing store. The store’s return policy stipulates that returns will be accepted within 15 business days from the date of purchase. Their policy also mentions that reimbursements will be made through store credit only, and not by cash.
One day after the purchase, you realize that one of the garments you bought has a hole in it. So you decide to return the product. The store manager informs you that they will accept the returned product. The manager then proceeds to create a credit memo because the clothing store will need to reduce a previously issued invoice to compensate for the sold damaged garment.

Once the memo is issued, your account at the fashion clothing store will be credited with the amount you paid for the item you want to return. You can then use this positive credit to either exchange the damaged garment with a proper one of the same model or buy a different garment altogether.


The modern marketplace is extremely competitive and small businesses need to be prepared with the best systems and software to stay competent. Business needs to not only attract new clients but also retain them if they want to grow and compete in the market for the long term. Efficiency is the name of the game, which is why it is crucial that small businesses find ways to maximize their results while saving their resources. Factors such as improving productivity and making dealings convenient for clients matter. An online invoicing system for small businesses is the key to achieving this. An improved invoicing process will ultimately help scale your business by bringing about enhanced cash flow. Gone are the days when creating invoices on paper and excel sheets were enough for efficient invoicing. Modern business processes demand the efficiency and the multiple benefits that only cloud-based software can bring to the table.

Is your small business equipped with a state-of-the-art invoicing system that caters to all its unique needs? Do let us know how it has helped your business in the comments box below.