What are invoices? Meaning, required fields and an example

An invoice is a document a seller sends to a buyer that lists what was supplied, what it costs and when payment is due. That is the short answer to "what are invoices". The longer answer is that an invoice does three jobs at once. It asks for money, it records a sale for the seller's accounts, and in many countries it is the legal proof the buyer needs to reclaim VAT.

This guide explains how invoices work, what a valid one must show in the UK and Germany, how the common invoice types differ, and what a finished invoice looks like with real numbers.

What are invoices?

An invoice is a commercial document issued by a seller that states the goods or services supplied, the amount owed and the payment terms. The seller sends it after, or sometimes before, the work is delivered. The buyer uses it to pay and to book the cost. Related: what a sales invoice is, what to put on an invoice, how to number invoices.

Invoicing is the process of creating, sending and tracking those documents. The invoicing meaning is the same for a one-person design studio and for a manufacturer: the supplier asks to be paid for something specific, at a specific price, by a specific date.

A receipt is not an invoice. An invoice asks for payment. A receipt confirms that payment arrived. The difference matters when a client claims they never owed anything, because only one of the two documents shows a debt.

How do invoices work?

An invoice moves through five steps between supplier and customer. The steps are the same whether the invoice is a paper sheet or an e-invoice file.

1. The supplier and customer agree the work and the price. This can be a quote, a contract or a purchase order.
2. The supplier delivers the goods or completes the service. Some suppliers invoice a deposit first.
3. The supplier issues the invoice. In the UK, HMRC says a VAT invoice should normally be issued within 30 days of the tax point (VAT Notice 700, paragraph 16.2.3).
4. The customer checks the invoice against what was agreed and pays by the due date, usually by bank transfer.
5. The supplier records the payment and matches it to the invoice number. A receipt can follow.

If the customer disputes the invoice, the supplier can issue a corrected invoice or a credit note. If the customer pays late, the supplier can chase it and, between businesses, add statutory interest.

What is an invoice payment?

An invoice payment is the money a customer sends to settle one specific invoice. The payment should quote the invoice number so the supplier can match the two.

Most invoices state a payment term, such as "due within 14 days" or "net 30". The term counts from the invoice date unless the invoice says otherwise. The invoice also lists the bank details, so the customer knows where to send the money.

What must an invoice show?

An invoice must show the required details that the country's tax law lists, and those details differ by country. A document missing a mandatory field may still ask for payment, but it may not let the customer reclaim VAT.

The table compares the two rule sets used most by Invoqk readers. The UK column comes from paragraph 16.3.1 of HMRC's VAT Notice 700. The German column comes from section 14(4) of the German VAT Act (UStG).

Two German details catch out new suppliers. First, the invoice number must be unique and sequential. Second, a supplier who has no VAT charge must say why, for example by naming the exemption.

The UK has a lighter option for small sales. HMRC allows a simplified invoice when the supply is worth £250 or less and the customer agrees. Above £250, or if the customer asks, the supplier must issue a full VAT invoice (paragraph 16.6 on simplified invoices).

The rules above cover invoices between businesses that charge VAT. A US invoice has no single federal format. A US seller still lists the same core facts, because the buyer's accountant needs them.

What is a tax invoice?

A tax invoice is an invoice that also shows the tax charged on the sale. In the UK it is called a VAT invoice. In Germany it is a "Rechnung" with the tax shown under section 14 UStG.

The tax invoice is the document a VAT-registered customer needs to reclaim input VAT. Without it, the customer usually cannot claim the VAT back. That is why suppliers who charge VAT should treat the mandatory fields as non-negotiable.

What is a sales invoice?

A sales invoice is the invoice a seller issues for goods or services it has sold. The seller books it as income. The buyer books the same document as a purchase.

The word "sales" describes the seller's side. The same document is a "purchase invoice" in the buyer's records. There is one document and two names.

What is a commercial invoice?

A commercial invoice is the invoice used when goods cross a border. Customs authorities use it to see what is in the shipment and what it is worth. It normally names the exporter, the importer, the goods, their value and the terms of sale.

A freelancer who sells services does not usually need a commercial invoice. A seller of physical goods shipped abroad usually does. Ask the freight forwarder or carrier which fields the destination country requires, because customs forms vary.

A worked example: one job, two jurisdictions

Here is the same job invoiced twice, so the difference in the rules is visible. A designer finishes a logo project for a client who agreed a fixed price of 1,000 in the local currency before tax.

UK version (VAT-registered designer, UK client, standard VAT rate)

The VAT rate of 20% is the UK standard rate, according to GOV.UK VAT rates. The VAT figure must appear in sterling, as paragraph 16.3.1 of Notice 700 requires.

German version (umsatzsteuerpflichtiger Designer, German client, standard VAT rate)

The German standard rate of 19% is set in section 12 UStG. The German invoice adds a separate date of service, because section 14(4) UStG requires the date of supply when it differs from the issue date.

The two documents carry the same facts. Only the labels, the tax rate and the supplier identifiers change.

What is an invoice used for?

An invoice is used for six practical purposes. The first three matter to the supplier and the last three to the customer.

• Requesting payment. The invoice states the amount and the due date.
• Recording income. The supplier books each invoice in its sales ledger.
• Proving the debt. If a client does not pay, the invoice is the first piece of evidence.
• Approving payment. The customer's accounts team matches the invoice to a purchase order or contract before paying.
• Reclaiming VAT. A VAT-registered customer needs a valid tax invoice to claim input VAT.
• Closing the books. Accountants use invoices to prepare VAT returns and annual accounts.

Common invoice mistakes

Most invoice disputes come from a short list of avoidable errors. Check each before sending.

• A missing or duplicate invoice number. Numbers must be unique and sequential in both the UK and Germany.
• A vague description. "Services" does not identify the supply. HMRC asks for a description sufficient to identify the goods or services.
• No due date. Without a date the customer has no deadline to meet.
• VAT shown in the wrong currency. HMRC requires the VAT total in sterling.
• Wrong customer details. A VAT invoice made out to the wrong company can fail a VAT reclaim.

Paper invoices and e-invoices

An invoice can be a PDF, a paper sheet or a structured data file. A PDF sent by email is still a normal invoice in most cases. An e-invoice is different. Section 14(1) UStG (e-invoice definition) describes it as an invoice issued, sent and received in a structured electronic format that a computer can process. Germany is moving B2B invoicing toward that format. Check the current timetable with the Bundesfinanzministerium before you plan around a date.

Make an invoice in minutes

A blank invoice has more fields than most people expect. Invoqk's invoice generator turns a plain description of the job into a finished invoice with the fields above, VAT calculated and a PDF ready to send.