Invoice

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An invoice, bill or tab is a commercial document issued by a seller to a buyer, relating to a sale transaction and indicating the products, quantities, and agreed prices for products or services the seller had provided the buyer.

Contents

Payment terms are usually stated on the invoice. These may specify that the buyer has a maximum number of days in which to pay and is sometimes offered a discount if paid before the due date. The buyer could have already paid for the products or services listed on the invoice. To avoid confusion, and consequent unnecessary communications from buyer to seller, some sellers clearly state in large and/or capital letters on an invoice whether it has already been paid.

From the point of view of a seller, an invoice is a sales invoice. From the point of view of a buyer, an invoice is a purchase invoice. The document indicates the buyer and seller, but the term invoice indicates money is owed or owing.

Within the European union, an invoice is primarily legally defined by the EU VAT directive as an accounting voucher (to verify tax and VAT reporting) and secondly as a Civil law (common law) document.

History

Invoices appear as one of the very earliest manifestations of written records in ancient Mesopotamia. [1]

Invoices

I N V O I C E
Company Name
123 Fake Street
Springfield






Invoice No
  Date
Terms
DescriptionAmount Owed:
Invoice Total[Currency]

A typical invoice may contain: [2] [3]

In countries where wire transfer is the preferred method of settling debts, the printed bill will contain the bank account number of the creditor and usually a reference code to be passed along with the transaction identifying the payer.

The US Defense Logistics Agency requires an employer identification number on invoices. [4]

The European Union requires a VAT (value added tax) identification number for official VAT invoices, which all VAT-registered businesses are required to issue to their customers. In the UK, this number may be omitted on invoices if the words "this is not a VAT invoice" are present on the invoice. Such an invoice is called a pro-forma invoice, and is not an adequate substitute for a full VAT invoice for VAT-registered customers. [5]

In Canada, the registration number for GST purposes must be furnished for all supplies over $30 made by a registered supplier in order to claim input tax-credits. [6]

Recommendations about invoices used in international trade are also provided by the UNECE Committee on Trade, which involves a more detailed description of the logistics aspect of merchandise and therefore may be convenient for international logistics and customs procedures. [7]

European Union

EU VAT union invoice definition

Within the European Union Value Added Tax directive, [8] Article 226 gives a concise definition of invoices within the European Union's member-states.

Without prejudice to the particular provisions laid down in this Directive, only the following details are required for VAT purposes on invoices issued pursuant to Articles 220 and 221:

  1. the date of issue;
  2. a sequential number, based on one or more series, which uniquely identifies the invoice;
  3. the VAT identification number referred to in Article 214 under which the taxable person supplied the goods or services;
  4. the customer's VAT identification number, as referred to in Article 214, under which the customer received a supply of goods or services in respect of which he is liable for payment of VAT, or received a supply of goods as referred to in Article 138;
  5. the full name and address of the taxable person and of the customer;
  6. the quantity and nature of the goods supplied or the extent and nature of the services rendered;
  7. the date on which the supply of goods or services was made or completed or the date on which the payment on account referred to in points (4) and (5) of Article 220 was made, in so far as that date can be determined and differs from the date of issue of the invoice;
    1. where the VAT becomes chargeable at the time when the payment is received in accordance with Article 66(b) and the right of deduction arises at the time the deductible tax becomes chargeable, the mention ‘cash accounting’;
  8. the taxable amount per rate or exemption, the unit price exclusive of VAT and any discounts or rebates if they are not included in the unit price;
  9. the VAT rate applied;
  10. the VAT amount payable, except where a special arrangement is applied under which, in accordance with this Directive, such a detail is excluded;
    1. where the customer receiving the supply issues the invoice (instead of the supplier) the mention 'self-billing';
  11. in the case of an exemption, reference to the applicable provision of this Directive, or to the corresponding national provision, or any other reference indicating that the supply of goods or services is exempt;
    1. where the customer is liable for the payment of the VAT, the mention 'reverse charge';
  12. in the case of the supply of a new means of transport made in accordance with the conditions specified in Article 138(1) and (2)(a), the characteristics as identified in point (b) of Article 2(2);
  13. where the margin scheme for travel agents is applied, the mention 'margin scheme – travel agents';
  14. where one of the special arrangements applicable to second-hand goods, works of art, collectors' items and antiques is applied, the mention 'margin scheme – second-hand goods'; 'margin scheme – works of art' or 'margin scheme – collector's items and antiques' respectively;
  15. where the person liable for payment of VAT is a tax representative for the purposes of Article 204, the (VAT identification number, referred to in Article 214, of that tax representative, together with his full name and address.

EU VAT union receipt (simple invoice) definition

Article 226b of the EU VAT Directive is a concise definition of receipts within the EU member-states.

As regards simplified invoices issued pursuant to Article 220a and Article 221(1) and (2), Member States shall require at least the following details:

  1. the date of issue;
  2. identification of the taxable person supplying the goods or services (VAT identification number);
  3. identification of the type of goods or services supplied;
  4. the VAT amount payable or the information needed to calculate it;
  5. where the invoice issued is a document or message treated as an invoice pursuant to Article 219, specific and unambiguous reference to that initial invoice and the specific details which are being amended.

They may not require details on invoices other than those referred to in Articles 226, 227 and 230.

Australian Tax Office Tax invoice definition

Details about the Australian Tax Office (ATO) requirements for a tax invoice can be found on their website. [9] [10]

For all GST purposes, a seller must issue a tax invoice to the buyer regardless of whether the sale involves cash or credit. Hence a tax invoice in Australia serves as an invoice as well as a receipt in the conventional sense. The words "paid" or "payable" differentiate meaning. The tax invoice must contain seven facts as per the GST Tax Law.

Variations

There are different types of invoices:

Electronic

Some invoices are no longer paper-based, but rather transmitted electronically over the Internet. It is still common for electronic remittance or invoicing to be printed in order to maintain paper records. Standards for electronic invoicing vary widely from country to country. Electronic Data Interchange (EDI) standards such as the United Nation's EDIFACT standard include message encoding guidelines for electronic invoices. The EDIFACT is followed up in the UN/CEFACT ebXML syntax cross industry invoice.

EDIFACT

The United Nations standard for electronic invoices ("INVOIC") includes standard codes for transmitting header information (common to the entire invoice) and codes for transmitting details for each of the line items (products or services). The "INVOIC" standard can also be used to transmit credit and debit memos.

In the European Union legislation was passed in 2010 in the form of directive 2010/45/EU to facilitate the growth of Electronic Invoicing across all its member states. This legislation caters for varying VAT and inter-country invoicing requirements within the EU, in addition to legislating for the authenticity and integrity of invoices being sent electronically. It is estimated that in 2011 alone roughly 5 million EU businesses will have sent Electronic Invoices. [17]

Open Application Group Integration Specification from OAGi

The XML message format for electronic invoices has been used since the inception of XML in 1998. Open Application Group Integration Specification (OAGIS) has included an invoice since 2001. The Open Applications Group (OAGi) has a working relationship with UN/CEFACT where OAGi and its members participate in defining many of the Technology and Methodology specifications. OAGi also includes support for these Technology and Methodology specifications within OAGIS.

CEFACT and UBL

There are two XML-based standards currently being developed. One is the cross industry invoice under development by the United Nations standards body UN/CEFACT and the other is Universal Business Language (UBL) which is issued by Organization for the Advancement of Structured Information Standards (OASIS). Implementations of invoices based on UBL are common, most importantly in the public sector in Denmark as it was the first country where the use of UBL was mandated by law for all invoices in the public sector. Further implementations are underway in the Scandinavian countries as result of the North European Subset project. Implementations are also underway in Italy, Spain, and the Netherlands (UBL 2.0) [18] and with the European Commission itself.

The NES work has been transferred to European Committee for Standardization (CEN), the standards body of the European Union), workshop CEN/BII, for public procurement in Europe. The result of that work is PEPPOL. There UBL procurement documents are implemented between various European countries.

An agreement was made between UBL and UN/CEFACT for convergence of the two XML messages standards with the objective of merging the two standards into one before end of 2009, including the provision of an upgrade path for implementations started in either standard.

ISDOC

ISDOC is a standard that was developed in the Czech Republic as a universal format for electronic invoices. On 16 October 2008, 14 companies and the Czech government signed a declaration to use this format within one year in their products.

Payment

Organizations purchasing goods and services usually have a process in place for approving payment of invoices based on an employee's confirmation that the goods or services have been received. [19] [20] [21] [22]

Typically, when paying an invoice, a remittance advice will be sent to the supplier to inform them their invoice has been paid.

Standardization

Invoices are different from receipts. Both invoices and receipts are ways of tracking purchases of goods and services. In general the content of the invoices can be similar to that of receipts including tracking the amount of the sale, calculating sales tax owed and calculating any discounts applied to the purchase. [23] Invoices differ from receipts in that invoices serve to notify customers of payments owed, whereas receipts serve as proof of completed payment.

Invoice finance

Invoice credit is a line of business credit secured by customer invoices.

See also

Related Research Articles

Bookkeeping Recording of financial transactions

Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business and other organisations. It involves preparing source documents for all transactions, operations, and other events of a business. Transactions include purchases, sales, receipts and payments by an individual person or an organization/corporation. There are several standard methods of bookkeeping, including the single-entry and double-entry bookkeeping systems. While these may be viewed as "real" bookkeeping, any process for recording financial transactions is a bookkeeping process.

UN/CEFACT is the United Nations Centre for Trade Facilitation and Electronic Business. It was established as an intergovernmental body of the United Nations Economic Commission for Europe (UNECE) in 1996 and evolved from UNECE's long tradition of work in trade facilitation which began in 1957

The term pro forma is most often used to describe a practice or document that is provided as a courtesy or satisfies minimum requirements, conforms to a norm or doctrine, tends to be performed perfunctorily or is considered a formality.

Accounts payable Money owed by business to its suppliers

Accounts payable (AP) is money owed by a business to its suppliers shown as a liability on a company's balance sheet. It is distinct from notes payable liabilities, which are debts created by formal legal instrument documents.

Purchase order

A purchase order (PO) is a commercial document and first official offer issued by a buyer to a seller indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from external suppliers. Purchase orders can be an essential part of enterprise resource planning system orders.

An ad valorem tax is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT). An ad valorem tax may also be imposed annually, as in the case of a real or personal property tax, or in connection with another significant event. In some countries a stamp duty is imposed as an ad valorem tax.

Receipt Written acknowledgment that a person has received money or property in payment

A receipt is a document acknowledging that a person has received money or property in payment following a sale or other transfer of goods or provision of a service. All receipts must have the date of purchase on them. If the recipient of the payment is legally required to collect sales tax or VAT from the customer, the amount would be added to the receipt and the collection would be deemed to have been on behalf of the relevant tax authority. In many countries, a retailer is required to include the sales tax or VAT in the displayed price of goods sold, from which the tax amount would be calculated at point of sale and remitted to the tax authorities in due course. Similarly, amounts may be deducted from amounts payable, as in the case of taxes withheld from wages. On the other hand, tips or other gratuities given by a customer, for example in a restaurant, would not form part of the payment amount or appear on the receipt.

Credit note

A credit note or credit memo is a commercial document issued by a seller to a buyer. Credit notes act as a source document for the sales return journal. In other words the credit note is evidence of the reduction in sales. A credit memo, a contraction of the term "credit memorandum", is evidence of a reduction in the amount that a buyer owes a seller under the terms of an earlier invoice.

Universal Business Language (UBL) is an open library of standard electronic XML business documents for procurement and transportation such as purchase orders, invoices, transport logistics and waybills. UBL was developed by an OASIS Technical Committee with participation from a variety of industry data standards organizations. UBL is designed to plug directly into existing business, legal, auditing, and records management practices. It is designed to eliminate the re-keying of data in existing fax- and paper-based business correspondence and provide an entry point into electronic commerce for small and medium-sized businesses.

Electronic billing or electronic bill payment and presentment, is when a seller such as company, organization, or group sends its bills or invoices over the internet, and customers pay the bills electronically. This replaces the traditional method where invoices were sent in paper form and payments were done by manual means such as sending cheques.

Debit note

A debit note' or debit memorandum (memo) is a commercial document issued by a buyer to a seller as a means of formally requesting a credit note. Debit note acts as the Source document to the Purchase returns journal. In other words it is an evidence for the occurrence of a reduction in expenses. The seller might also issue a debit note instead of an invoice in order to adjust upwards the amount of an invoice already issued . Debit notes are generally used in business-to-business transactions. Such transactions often involve an extension of credit, meaning that a vendor would send a shipment of goods to a company before the goods have been paid for. Although real goods are changing hands, until an actual invoice is issued, real money is not. Rather, debits and credits are being logged in an accounting system to keep track of inventories shipped and payments

Special journals

Special journals are specialized lists of financial transaction records which accountants call journal entries. In contrast to a general journal, each special journal records transactions of a specific type, such as sales or purchases. For example, when a company purchases merchandise from a vendor, and then in turn sells the merchandise to a customer, the purchase is recorded in one journal and the sale is recorded in another.

The European Union value-added tax is a value added tax on goods and services within the European Union (EU). The EU's institutions do not collect the tax, but EU member states are each required to adopt a value added tax that complies with the EU VAT code. Different rates of VAT apply in different EU member states, ranging from 17% in Luxembourg to 27% in Hungary. The total VAT collected by member states is used as part of the calculation to determine what each state contributes to the EU's budget.

The XBRL Global Ledger Taxonomy Framework is a holistic and generic XML and XBRL-based representation of the detailed data that can be found in accounting and operational systems, and is meant to be the bridge from transactional standards to reporting standards, integrating the Business Reporting Supply Chain.

SAF-T is an international standard for electronic exchange of reliable accounting data from organizations to a national tax authority or external auditors. The standard is defined by the Organisation for Economic Co-operation and Development (OECD). The file requirements are expressed using XML, but the OECD does not impose any particular file format, recommending that "It is entirely a matter for revenue bodies to develop their policies for implementation of SAF-T, including its representation in XML. However, revenue bodies should consider data formats that permit audit automation today while minimising potential costs to all stakeholders when moving to new global open standards for business and financial data such as XBRL, and XBRL- GL in particular."

Electronic invoicing is a form of electronic billing. E-invoicing methods are used by trading partners, such as customers and their suppliers, to present and monitor transactional documents between one another and ensure the terms of their trading agreements are being met. These documents include invoices, purchase orders, debit notes, credit notes, payment terms, payment instructions and remittance slips.

Goodsand Services Tax (GST) is an indirect tax used in India on the supply of goods and services. It is a comprehensive, multistage, destination-based tax: comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. Multi-staged as it is, the GST is imposed at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer and as a destination-based tax, it is collected from point of consumption and not point of origin like previous taxes.

The Digital Invoice Customs Exchange (DICE) is a revenue protection idea developed to prevent tax evasion methods such as sales suppression in domestic trade and missing trader fraud, transfer pricing in cross-border trade. As such, the implementation of this idea enables Revenue Authority to have advance notice of every commercial transaction.

Value-added tax Form of consumption tax

A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer. If the ultimate consumer is a business that collects and pays to the government VAT on its products or services, it can reclaim the tax paid. It is similar to, and is often compared with, a sales tax.

CEN/TC 434 is a technical body within the European Committee for Standardization (CEN) developing standards in the field of Electronic Invoicing.

References

  1. McClellan III, James E.; Dorn, Harold (2006). Science and Technology in World History: An Introduction (2 ed.). Baltimore: The Johns Hopkins University Press. p. 47. ISBN   9780801883606 . Retrieved 21 April 2020. The archaeological discovery of what amount to ancient Mesopotamian invoices — insignia sealed in clay — underscores the economic and utilitarian roots of writing and reckoning. Eighty-five percent of cuneiform tablets uncovered at Uruk (3000 BCE), for example, represent economic records, and Egyptian temple and palace records are similar.
  2. Invoice illustration adapted from Meigs and Meigs Financial Accounting 4th Ed. (McGraw-Hill, 1970), p.190 ISBN   0-07-041534-X
  3. Woodford, William; Wilson, Valerie; Freeman, Suellen; Freeman, John (2008). Accounting: A Practical Approach (2 ed.). Pearson Education. pp. 4–10. ISBN   978-0-409-32357-3.
  4. US Defense Logistics Agency - Required information in invoices Archived 10 July 2007 at the Wayback Machine
  5. Conn, Frances (15 August 2017). "VAT Invoice Essentials". Figure Weave Accountancy. Retrieved 12 May 2019.
  6. Input Tax Credit Information (GST/HST) Regulations, SOR/91-45, at s. 3(b)(i)
  7. Recommendation No. 06: Aligned Invoice Layout Key for International Trade (UN/CEFACT; 2000; 7 pages) ID: ECE/TRADE/148; Topic: Trade Facilitation and e-Business
  8. Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax
  9. Requirements of tax invoices https://www.ato.gov.au/Business/GST/Issuing-tax-invoices/
  10. How to set out tax invoices and invoices "Archived copy". Archived from the original on 9 February 2015. Retrieved 18 January 2015.CS1 maint: archived copy as title (link)
  11. DHL | Global | Customs Paperwork Archived 17 April 2015 at the Wayback Machine
  12. ControlPay, Self-billing, accessed 26 April 2018
  13. HMRC. "Self-billing and VAT".
  14. Consolidated VAT Directive, 2006, Article 224
  15. Notice 700/62 - Self-billing)
  16. SCM | What is Evaluated Receipt Settlement?
  17. The European Electronic Invoicing Experts Archived 11 January 2012 at the Wayback Machine
  18. "Elektronisch factureren" (in Dutch). Government of the Netherlands. Archived from the original on 22 November 2011. Retrieved 5 January 2012.
  19. Michigan state Bureau of Transportation Invoice processing
  20. US Department of the Navy Commercial Invoice Payments History System Archived 3 July 2007 at the Wayback Machine
  21. Commercial Contracting Guidelines - US Defense Contract Management Agency Archived 26 June 2007 at the Wayback Machine
  22. US Office of Federal Procurement Policy - Best Practices for Contract Administration Archived 12 June 2007 at the Wayback Machine
  23. "WorkingPoint Help". Workingpoint.com. Archived from the original on 19 August 2013. Retrieved 24 May 2013.