Definition of Invoice and Its Importance

Definition

An invoice is an official and detailed commercial document issued by the seller to the buyer containing all details of goods or services provided, their quantities, individual prices, total amount, applied discounts, and added taxes.

Importance

• Legal Proof: Forms conclusive evidence of transaction completion and defines rights and obligations of parties in courts
• Accounting and Recording: Foundation for recording revenues and expenses in books and preparing financial statements
• Taxes and Compliance: Calculating and deducting value-added tax and other taxes and complying with tax laws
• Collection and Follow-up: Tracking payments and receivables and managing cash flows
• Internal Control: Monitoring sales and purchase volumes and analyzing commercial performance
• Documentation and Archiving: Keeping commercial records for review, auditing, and legal and tax requirements

Types and Specifications of Invoices

Main Types:

• Trade Invoices: Include sales invoices issued by companies to customers to document product and goods sales operations, and purchase invoices issued when dealing with suppliers and obtaining goods and services necessary for commercial operations

• Service Invoices: Dedicated to intangible services such as administrative and legal consultations, maintenance and repair services, technical and design services, differing in details from goods invoices by focusing on service description and time spent

• Estimate Invoices: Preliminary price quotes determining expected cost for project or service before starting, adjustable according to actual requirements, used to obtain prior customer approval

• Settlement Invoices: Combine several separate transactions with the same customer in one comprehensive invoice to facilitate payment process and reduce administrative work, especially in regular and continuous dealings

• Advance Payment Invoices: Confirm receipt of deposit amounts or advance payments from customers before order execution, ensuring customer commitment and securing cash flow for seller

• Amendment Invoices: Issued to cancel or correct errors in previous invoices, include original invoice data and required amendments, maintaining numerical sequence of invoices

• Electronic Invoices: Legally approved digital copies issued, sent, and stored electronically, characterized by speed, accuracy, and cost savings, requiring approved protection and encryption systems

Mandatory Specifications:

• Party Identity: Including trade name, detailed address, commercial and tax registration numbers, basic contact information
• Basic Information: Unique sequential invoice number, issue date, issue location, and payment due date if applicable
• Product/Service Details: Detailed description of products or services, required quantities, measurement units, product codes if available
• Financial Information: Individual prices for each item, subtotals, applied discounts, and other additions
• Taxes: Details of calculated taxes (value-added tax and others), their rates, and comprehensive final total
• Payment Terms: Specified payment terms and deadlines, accepted payment methods (cash, check, bank transfer), bank account details
• Signature and Approval: Official company seal or authorized signatory signature, with date and place when necessary

Invoice System and Legal Requirements

Invoice system forms the backbone of commercial and accounting operations in any institution, subject to comprehensive legal and regulatory requirements aimed at ensuring transparency and accountability in commercial transactions.

Accounting System

Invoice system requires mandatory numerical sequence for all issued invoices with necessity to keep original copies and matching images. Invoices must be linked to corresponding accounting entries in books and apply organized and dated archiving system for easy access and review.

Legal Requirements

Commercial laws require including complete seller and buyer data in invoice with tax number and calculated tax details. Official company signature or seal must be present using approved language and official currency of the country.

Electronic Invoice

Requires using system approved by regulatory authorities with legally approved electronic signature. Must apply required encryption and security protection standards and secure electronic storage according to specified technical specifications.

Tax Compliance

Includes correct application of value-added tax and submitting periodic reports to tax authorities at specified deadlines. Must keep records and invoices for legally stipulated period with subjection to periodic auditing and review by competent authorities.

Method of Creating Invoices

Creating invoices is essential for any commercial business and invoices can be created using modern digital methods that facilitate the process and ensure professional appearance.

Invoice Creation Steps:

• Choose Appropriate Tool: Use accounting software like Mezan, or spreadsheet templates like (Excel, Google Sheets)
• Add Company Information: Write business name, logo, address, contact details, and tax number at top of invoice
• Enter Customer Data: Write customer name, billing address, and contact information in designated section
• Create Invoice Numbering: Write unique invoice number with issue date and payment due date
• Write Services/Products List: Describe each item with quantity, unit price, and subtotal
• Calculate Totals: Sum subtotal, apply any discounts, add taxes, and display final amount
• Add Payment Terms: Specify accepted payment methods, due date, and late policy
• Review and Send: Ensure accuracy of all information, save invoice in archive, and send via email or print for delivery

Legal and Contractual Aspects of Invoice

Invoice is considered a binding legal document carrying proof power in commercial disputes and confirms existence of financial obligation between parties. Legally, invoice must include mandatory data such as issuer's tax number, unique sequential number, issue and due dates, and complete party information for compliance with local laws.

Invoice grants seller legal rights to claim payment and resort to judiciary when delayed, while obligating buyer to pay according to specified terms with right to object within legally specified periods. From tax perspective, invoices form basis for calculating value-added tax and other tax obligations, with strict penalties for non-issuance or data manipulation.

Invoice confirms contractual aspects agreed upon between parties, including sale terms, payment methods, payment deadlines, and cancellation and refund terms. Laws also require keeping invoices for specified periods for tax and accounting review, with electronic copies legally approved in most modern systems.

Invoice Validity and Duration

Invoice validity periods vary according to agreements concluded between parties and prevailing legal systems in each country, which specify certain periods for keeping financial documents for review and tax declaration purposes.

Common Errors When Creating Invoices and Ways to Avoid Them

Invoice errors lead to legal and financial problems and payment delays, so it's essential to avoid these errors to ensure smooth business operation and maintain trust with customers:

• Basic Data Errors: Verify customer information, use automatic numbering system, and review dates before sending
• Calculation Errors: Can be avoided by using accounting software to calculate taxes and totals, and update price lists regularly
• Non-Legal Compliance: Ensure inclusion of required tax data, clearly define payment terms, and keep archived copies
• Communication and Follow-up Errors: Send invoices at fixed schedules, verify contact information accuracy, and set reminders for due amounts
• Not Using Approved Templates: Rely on standardized forms and review all data twice before final sending or delivery