7 Types of Invoices Every Business Should Know [+Templates]

The reason why there are different types of invoices for different types of transactions is so vendors can keep their accounting records organized and their finances properly managed.

Business owners and vendors are not likely to use all types of invoices. However, understanding the purpose of each is still fundamental to enriching their background in implementing efficient accounting and inventory management practices.

Even customers can benefit from learning about the various invoice types that they might encounter while purchasing items or hiring services from different businesses.

So, keep reading to get familiar with a plethora of invoicing documents and boost your sales and accounting know-how!

Key Takeaways

• The seven main types of invoices are standard, proforma, debit, credit, mixed, recurring, and commercial invoice.
• A standard invoice is used to request payments from a customer in exchange for acquiring goods and services, while a proforma invoice provides customers with the seller’s estimated prices.
• A debit invoice is used to make downward adjustments to the original rates charged by a vendor. Credit invoices are issued to a customer who is due for a refund.
• The two types of invoice formats are paper invoices and digital invoices. Paper invoices are more commonly used by sellers, although digital invoices are more efficient and time-saving.

7 Main Types of Invoices

Most businesses frequently use one or more of the seven different types of invoices in their daily transactions. These invoices are essential in securing consistent cash flow and minimizing instances of late or non-payments from customers.

Here’s a closer look at each of these invoice examples:

#1. Standard Invoice

A standard invoice is a document that serves as a formal payment request from a vendor or service provider to a customer. It is also called a basic invoice because it is the most universal invoice type.

Standard invoices outline the goods provided by the seller, their prices, and the total amount owed by the customer.

• How it works: Vendors and business owners usually issue a standard invoice after a customer sends a purchase order, specifies the goods and quantity of items they wish to purchase, or receives the products.

• Who uses it: A standard invoice is used in most business transactions. Small business owners, sellers of consumer goods, and even independent contractors use basic invoices to charge payments from clients. Basic invoices are also flexible enough to suit one-time and multiple purchases.

• Example: A construction firm purchased ten sets of cold-rolled steel sheets from A&G Steel for $475.80. A&G Steel then sends an invoice to the construction firm to confirm their orders and request payment before shipping the goods.

#2. Proforma Invoice

Proforma invoices or preliminary invoices provide information about a vendor’s goods, along with the tentative prices of a seller’s items based on estimated quantities and costs.

Vendors typically use proforma invoices with repeat customers or buyers with whom they have established trust. However, they can also send the said type of invoice to a prospective client expressing strong interest in their products.

• How it works: The vendor provides an outline of the estimated costs based on the buyer’s request and specifies their payment terms and accepted types of invoice payments. In turn, the customer reviews the proposed prices, and either makes a final negotiation with the vendor or agrees with the terms, giving the go-ahead to proceed with their purchase.

• Who uses it: Businesses shipping goods internationally, vendors supplying wholesale products, and sellers who specialize in customized products are more likely to use proforma invoices.

• Example: Trip Designs specializes in creating 3D-printed jewelry, phone cases, and plant pots. A customer wants to purchase 40 pairs of earrings and 30 pieces of geometric plant pots. Trip Designs’ estimated cost for the earrings is $18.99 per pair, while the plant pots cost $23.26 each. The total amount for both bulk orders is $1,457.40.

#3. Debit Invoice

A debit invoice is a type of invoice that makes a downward adjustment to the prices indicated on a previously issued invoice. The goal of issuing a debit invoice is to correct any mistakes that a vendor incurred in the original invoice that was sent to the customer.

• How it works: A vendor usually sends a debit invoice after they discover the discrepancy on the invoice that they initially sent. However, it is also possible that the customer is the one who notices the errors in calculating the rates and total amount, so they may inform the seller about it, too.

• Who uses it: Any type of business or vendor who needs to make a correction or adjust the details in a previously issued invoice may use this type of invoice document.

• Example: Trip Designs issued the final invoice for the custom earrings and geometric plant pots. Prior to that, the client increased their plant pot orders to 50 pieces but negotiated for a discounted price. In the end, Trip Designs agreed and adjusted the price for each plant pot to $21.80. Now, Trip Designs must send a debit invoice that shows the combined costs for the earrings and plant pots worth $1,849.6.

#4. Credit Invoice

Credit invoices are used to notify customers or clients that they are due for a credit or refund. Unlike the regular types of invoices that charge payments from customers, credit invoices return excess payments sent to a business.

• How it works: When a customer pays more than the total amount indicated in their invoice, the seller is then obligated to refund the excess payment. Similarly, if a business owner owes their supplier, they must issue a credit invoice and input the amount in their accounts payable.

• Who uses it: Vendors and establishments that owe their clients in excess payments must issue a credit invoice. On the other hand, it is ideal for a business owner to have a set of clear return or refund policies to ensure customers are properly guided on their limitations when requesting refunds or returning purchased items.

• Example: After Trip Designs successfully delivered the 3D-printed earrings and plant pots to their customer, they were informed that eight of the customized earrings were missing. Since the earrings are worth $18.99 each, Trip Designs must issue a $151.92 refund to their client.

#5. Mixed Invoice

A mixed invoice combines credit and debit charges to a client in one invoice. It is also used to avoid putting together taxable and non-taxable goods, which could cause errors in calculating the total owed by the customer.

In this manner, business owners maintain accuracy in their financial records and ensure transparency across all of their transactions.

• How it works: A vendor combines the adjustments made on a debit invoice with the information in a customer’s credit invoice. That said, it is possible for a mixed invoice to yield either a zero amount or even a positive or negative net total. It all depends on the adjustments made to a previously issued invoice or the refund amount a seller still owes their customer.

• Who uses it: Mixed invoices are more commonly used in B2B transactions. However, small and medium-sized businesses may also use the said type of invoice if needed.

• Example: Following the example from Trip Designs, the client placed a new order for ten phone cases while awaiting their refund for the eight pairs of earrings they didn’t receive. If Trip Designs charges $30 each for the phone cases, then the client must pay $300 for the ten phone cases. However, since Trip Designs owes them a credit of $151.92, the client will only be charged $148.08 for their latest purchase.

#6. Recurring Invoice

A recurring invoice is one of the many types of invoices in accounting that is used for subscription-type or repetitive types of services.

There are various recurring invoice examples you may already be familiar with, such as payments for streaming services, gym memberships, e-books, digital magazines, SaaS (Software as a Service), and membership discounts.

• How it works: A customer is presented with the service provider’s subscription packages or service plans. Each subscription plan is charged at different rates and offers a variety of perks. The more expensive the plan, the more benefits, discounts, and other advantages await the customer.

• Who uses it: Companies or businesses that offer subscription-based services or products charged on a recurring basis are best suited for this type of invoice.

• Example: Spotify is a digital music service that offers four different types of Spotify premium plans to its users. Depending on the user’s plan of choice, Spotify charges as low as $5.99 to $19.99 per month.

#7. Commercial Invoice

This type of invoice is an export document issued when requesting payments for goods sold and shipped internationally.

Apart from the usual information you would find in a regular invoice, commercial invoices also outline the product details contained in the shipment.

These details include the type and quantity of items shipped, net weight, currency code, applicable taxes, and HS (Harmonized System) code.

• How it works: The steps in preparing a commercial invoice are pretty much the same as the steps needed to create a regular invoice. The only difference is that the seller must consider the shipping costs as well as any additional documents required by the Customs Authorities in the recipient country.

• Who uses it: Since a commercial invoice is one of the invoice types used in shipping, the businesses that use the said invoice cater to a global customer base. Items shipped within the country but across different states do not require a commercial invoice.

• Example: JYV Corporation is a multinational e-commerce company in the US that sells wholesale consumer goods. They cater mostly to establishments and receive multiple bulk orders from various businesses and trades every week. In the first week of September, JYV Corporation received a purchase order for electrical equipment and office supplies worth $1,289 from a company based in Ireland. But before JYV Corporation could ship the items and the invoice to their client, they must first meet all the shipping requirements set by Ireland’s Customs Regulations.

2 Main Invoice Formats

The two types of invoice formats include paper invoices and digital invoices.

Here’s how these two formats differ:

Paper Invoices

Paper invoices are considered the traditional invoice format.

Since paper invoices are more commonly used among businesses, people are more familiar with how to create one. Be that as it may, it can still be time-consuming to simultaneously prepare paper invoices for multiple purchases, which is one of the downsides when it comes to this invoice format.

Another downside is that paper invoices are more prone to external damages and misplacement.

Digital Invoice

A digital invoice is the paperless counterpart of a paper invoice. Businesses create a digital invoice either by scanning the paper invoice or by using a word processor, PDF software, or an invoice generator.

While digital invoices are practical to use, they are also prone to technical errors. As such, sellers must use other accessible and reliable alternatives, like Paystub.org’s invoice generator.

Our generator is 100% secure and uses a selection of invoice templates complete with a built-in calculator to maximize your resources and reduce errors in your invoice documents.

Final Thoughts

Now that you know what types of invoices exist, you are better equipped to address various customer demands or explore your rights as a buyer.

Familiarizing yourself with various invoice documents may seem like such a simple task, but it will prove instrumental in avoiding potential invoice disputes in case you’re a seller who issued the wrong type of invoice.

Furthermore, you can secure better cash flow in your business, maintain a smooth-flowing accounting process, and boost customer acquisition and retention.

Types of Invoices FAQ

#1. What is a sales invoice?

A sales invoice is a type of invoice sent to request payment from a customer who purchased a seller’s goods or hired their services. It contains all the items or services provided by the vendor, the total amount to be paid, and the vendor’s accepted payment methods.

#2. How can I create my own invoice?

You can create your invoice by using online platforms and web applications offering customizable invoice templates that suit your business needs. Examples of these platforms include Paystub.org’s invoice generator, Canva, and Google Docs, among others.

#3. What are the essential elements of an invoice?

The essential elements or information in an invoice include the business and customer’s name, address, and contact information.

The invoice must also bear the invoice number, payment terms, the type and quantity of services or goods purchased, and the total amount owed by the customer.

#4. What is invoice matching?

Invoice matching or purchase order matching is a process that cross-references the details in an invoice with relevant documents. It verifies the accuracy and consistency of information found in a purchase order, goods received notes, and supplier invoices.