Issuing an invoice after payment

When you sell a service or a product to a customer, the prudent thing to do is give them an invoice immediately. According to the law, if both you and the customer are registered for VAT, then an invoice is a must.

If you happen to forget to issue an invoice, and the customer has already paid for the service or goods, you may be wondering whether you can issue an invoice after payment has been made or how late is too late?

These are some of the questions we will be answering on this topic.

Invoices are payment requests that usually contain a lot of information concerning the sale in question. They are an essential part of business regardless of whether you are a limited company, a sole trader, or a partnership.

Each invoice you send out is a tax document and acts as income proof, and therefore, must be saved just in case the HMRC asks for them.

For an in-depth explanation of what an invoice is, read our article:  What is an invoice?

You must know what you are doing when preparing invoices for your customers. This is because an incorrect invoice can end up delaying payment and cause confusion with the customer. This can effectively affect your relationship.

Getting it right the first time is significant and can make a big difference in your business dealings.

Here’s what you should include in an invoice;

The correct specifications

As per the HMRC site, the following information should be available on the invoice;

• An invoice number – this is the unique identifier.
• The name of your company, contact information, and address.
• The customer’s company name and address.
• A clear description of the goods and services
• The date when the goods were delivered or service provided
• The date of the invoice
• The amount of money you are charging.
• The VAT applicable
• The total amount you are owed.

In case you are VAT registered, then you will need to add the following details;

• The VAT number
• The tax point or time of supply
• The price per item.
• The total amount you are excluding from VAT
• The total price per item – this should be excluding the VAT.
• The total amount you are excluding from the VAT.
• The total VAT amount.
• The quantity of the items, if applicable, plus any discount rates.
• The VAT rate that is charged per item.
• The total amount inclusive of the VAT.

The deliverables 

The invoice should be as straightforward as possible to make it easy for payment to be completed and ensure that you maintain a good relationship with your customer. The deliverables should be concise and not general at all.

The type of invoice

You must also specify the type of invoice you create to ensure that you issue the right one in the right format to the client.

Now, if you are issuing an invoice for the delivery of products or services, then you will be issuing a “Sales Invoice,” and if the VAT is inclusive, then you are creating a “Tax Invoice.”

Here are some other types of invoices;

• Interim invoices – these are created for long projects that require different payments. In this case, you could prepare an interim invoice.
• Recurring invoices – these are prepared for providing a regular product or service.
• Commercial invoices –These are issued to calculate the number of customers on the imported goods.
• Credit note – this one is issued when you wish to reverse or charge the customer from a previous invoice.

Six years. This is from the date the service was provided. Sometimes you just forget to issue an invoice, and it’s good to know what you can do next.

Now, you should always ensure that you raise invoices on time as they are a vital part of credit control, and they help the cash flow in the business. Again, most people will not pay you if you do not issue them with an invoice.

This is a rule under the Limitation Act of 1980, and the limitations outlined clearly, that a creditor can pursue an unpaid invoice from the customer for up to 6 years.

That being said, if after several months after a job has ended or a product delivered you realize that you forgot to issue the invoice, it is courteous to speak with your customer and let them know what happened so you can come up with a solution together.

If the customer happens to argue this and claims that they will not pay since no invoice was issued, you may want to prove that the products were delivered or service was provided. This is why I would like to re-iterate that; you MUST always provide an invoice each time you make a transaction.

Yes. The law gives you 30 days after the payment has been made. At the end of 30 calendar days from when the invoice was paid, this transaction is considered undisputed and valid.

This would mean backdating the invoice, which is not ethical. After payment, what you should send is a receipt to show that payment was made and received.

You cannot send an invoice after payment. We shall explain below the ethical implications of backdating an invoice. It is generally good business practice to always issue an invoice after a service has been provided or a product delivered.

If you are having trouble raising invoices on time, it would be wise to set up a credit control department to handle all of your invoicing and debt collection.

Yes. As a business enterprise, it is a legal obligation to provide an invoice to your customer after selling or providing a service. As a seller in the UK, you must provide your customers with an invoice, especially if you are both registered for VAT.

Yes. An invoice MUST always be issued after you have completed the order from the customer. The invoice is to notify the customer that payment is needed, and once the customer receives the invoice, they are required to make payment for the service or product provided.

This will depend on the seller’s payment terms, but usually, the period is usually either net 30 days, or 60 days or 90 days upon receipt of goods and services.

This is an area of concern for most businesses as clients will often have their own terms of paying for goods and services.

Okay, let me give you a good example of what I mean by this;

For example, let’s say a sole proprietor named John, runs his own business that provides electronic products that can only be used on a plane. He deals mostly with small jet craft companies, and the technology is only for a specific type of airplane.

Then, a national airline he never deals with contracts him to deliver around 1000 of this product. What will John do? He will be very excited about the huge order, and of course, deliver the product and then send them an invoice explicitly telling them that his payment terms are net 30 days always.

The airline, on the other hand, says that they usually pay all invoices after 90 days. John will be in a difficult position, because he knows that this order will help in expanding his business, but then, doesn’t want to wait 90 days for the payment. That is like 3 whole months!

What John should have done to avoid this situation would have been addressing his payment terms once contact was made by the large airline.

In this way, he probably would have been able to convince them to first make a partial payment to show commitment. Now that it was not done. He is in a mess.

Well, in the end, he may have to just wait for the 90 days to elapse since he already delivered the goods and a payment of such magnitude will potentially change the course of his business. Meanwhile, he may be forced to sell the invoice through Invoice Financing (I have explained this in a previous blog, please keep an eye out for it) this will help him with some much needed cash flow for the continuity of his business.

This is what I was trying to explain; that payment terms are a huge area of concern for small businesses that need fast payments.

Well, it’s not advisable. So, NO, you shouldn’t. I will explain why.

Regardless of the kind of business you are doing, keeping good and clean records is vital for success. Although there are some legitimate instances that would necessitate you backdating an invoice, such as if you forgot to issue one in the first place, but it is never a good idea.

At best, this will muddle your reconciliations and accounts and make them a chore. At the worse, you will end up exposing your business to liability issues and audits.

That being said, backdating is Illegal, when you decide to backdate the invoice in order to change the payment window. For example, if you usually maintain a 14-day window, you backdate to force customers to pay within 30 days, charging them late fees. This is illegal.

Backdating can be unethical when you feel the need to honour a customer’s request. For example, the request would come early in the year, and the customer wishes to apply the expenditure to the previous tax period. Although you might be happy with helping, it is best to refuse any such requests.

Through automation. This is one of the best ways of ensuring that you do not get caught in the “Sin” of backdating. Automation of your invoices and accounts receivables. You should also ensure that you have clear billing policies and that invoices are automatically generated and sent to the customers on a specific but reasonable schedule.

As such, the customers are notified immediately when a payment is needed.

So, the bottom line is that;

• Invoices are vital
• Invoices must be prepared BEFORE payment is made.
• Invoices MUST never be backdated
• Invoices are LEGAL binding documents

I hope that I have enlightened you on invoices and how they should be treated. Without invoicing, you may never be able to collect from your customers, and your customers, on the other hand, are not obligated to pay.

Ensure to ALWAYS remember to provide invoices for services rendered or products delivered, and since that is not enough. Do it at the right time.