What Is an Invoice? Definition, Types & How to Create Invoices (2025)

Invoices establish an agreement between you and your customer and ensure you get paid for the products you sell. It’s a legal record that outlines the products and quantities you sold, when you sold them, the prices, and when payment is due.

This guide explains what invoices are, the different types of invoices, and how to automate e-invoicing to speed up payment. 

What is an invoice?

An invoice, whether paper or digital, is a legally binding request for payment. It confirms and records the products a customer bought and the amount they have agreed to pay for those products.

On your books, an invoice opens an accounts receivable (AR) entry. The invoice becomes a short-term asset on your balance sheet, telling you how much cash is expected to come in. 

On the buyer’s side, the invoice becomes a liability when it lands in accounts payable (AP). It shows how much cash is expected to leave the business, and when, so the business can plan for working capital and maintain strong supplier credit terms. 

Invoice vs. bill

A bill records a sale that the customer pays right away. Unlike an invoice, which often has detailed payment terms and other information, a bill is a simple statement of what’s due now.

Invoice vs. purchase order

Purchase orders (POs) work the other way around: they detail the items a buyer intends to purchase at a set price. As a small business, you’d issue a purchase order to a vendor when ordering, or planning to order, large quantities of products or services. Issuing a PO for products to be ordered over a set period of time, such as a fiscal quarter or year, can also help facilitate processes for both the purchaser and the vendor. 

📚 Read: Purchase Order Management: Steps and Tools (2025)

Elements of an invoice

Your invoice format will depend on your bookkeeping needs, your local regulations, and the type of store you run. Here's an example of a standard invoice:

Keep the following elements in mind when creating your invoice template:

1. Invoice terminology

First, make sure you include the word “Invoice” at the top of the document. Make sure it’s easy to see so your customer won’t confuse it with a different document, like a purchase order or a credit note.

This is not only for practical reasons—it’s a legal obligation for business-to-business transactions in most countries.

2. A unique invoice number

Each invoice document should have its own reference number, and your bookkeeping system should keep a record of the numbers used. Your customers will use your invoice numbers to track payments on their end.

Assign numbers to invoices sequentially, starting from the lowest (1 or 0001, for example) and assigning the next number to each invoice that follows in sequence.

You can also use letters in your unique invoice number to categorize them by customer or other factors.

3. Your company information

Every invoice needs your business information on it: company name, address, phone number, and email address. Include your VAT ID if you have one and it’s applicable to the transaction. This should be positioned at the top of the invoice.

These details also help your customer keep accurate records.

4. Customer information

Customer information also goes at the top of your invoice and reflects the format of your company information. Include the customer’s name, billing address, shipping address (if different from billing address), phone number, and email address.

5. Invoice date

It’s crucial to include the date on which your invoice is created. It usually determines the payment due date, and shows whether the invoice is overdue and needs follow-up.

6. Names and descriptions of products sold

This is the main part of your invoice, as it makes up the total amount due and indicates the products your customer ordered from you.

Each unique type of product—for example, a combination of a selected color and size—gets its own line on the invoice. Each line item should also have these columns:

• Description of the goods: Add a short product description and/or the product’s SKU number.
• Quantity: Specify how many units of a product the customer ordered.
• Unit price: The price of a single unit of a product.
• Line total: Unit price multiplied by the quantity.

7. Sales tax

Sales tax depends on your state and the types of products you sell as a retail business. Once you determine whether you need to charge for sales tax and how much, you need to include it in your invoice.

Here’s a regularly updated table with sales tax rates per state.

8. Total amount due

This number should stand out from the rest of the information on your invoice—it’s the most important piece of information for your customer, and the reason you’re issuing an invoice in the first place.

Add up your line totals to a subtotal amount. If you don’t charge sales tax or VAT, this is also your total amount due.

If you need to charge sales tax, indicate the sales tax rate you’re charging, multiply the subtotal by the sales tax rate, and add the result to the total due.

For example:

• Subtotal: $100
• Sales tax rate: 7%

$100 x .07 = $7 → The sales tax amount for this invoice

$100 + $7 = $107 → The total amount of this invoice (subtotal + sales tax amount)

9. Terms of payment

Be explicit about your payment terms on the invoice. This removes any guesswork or unspoken expectations for you and your customers.

Here are some common terms of payment you can use:

• Net X: Payment within X days from invoice date. These are most often Net 7, Net 30, Net 60, and Net 90. Customers will often wait until this date to make their payment.
• Payment in advance (PIA): Payment in full before you fulfill their order and complete the work.
• Cash in advance (CIA): Similar to PIA, but the payment is specifically made in cash before you fulfill the order and complete the work.
• Upon receipt: You expect payment when the customer receives the invoice, usually the next business day.
• End of month (EOM): Payment by the end of the same calendar month in which the invoice was issued.
• 15th of the month following invoice (15MFI): Payment by the 15th of the month after the invoice date.
• 50% upfront: You ask for 50% of the total invoice amount before you fulfill the order and complete the work. This is usually used for larger orders and projects.

10. Payment details

Outlining payment details is a great way to make paying supplier and customer invoices easier. With 77% of online shoppers saying they will abandon a purchase if their preferred payment option isn’t available, this section of your invoice is worth optimizing for flexibility.

11. Shipping terms

Finally, include your shipping terms, including who’s responsible for the shipping costs.

Include details about the method of shipping, expected delivery date, and tracking information.

Different types of invoices

Recurring invoice

Recurring invoices are issued to customers at regular intervals for repeat transactions. Some examples include subscription box services or a yearly delivery subscription, like the one ASOS offers.

Pro forma invoice

A pro forma invoice shows the price of goods and records the commitment of the seller to deliver the goods. It’s issued in advance and allows the buyer to plan for the purchase, as well as calculate any customs fees before buying.

Timesheet invoice

Timesheet invoices are issued to charge for work done on an hourly basis. They include the number of hours worked and the hourly fee to make up the total invoice amount.

Credit invoice

A credit invoice is issued when you need to give a customer a refund or a discount, usually when customers make a return. It’s also called a credit note or credit memo. This invoice reverses a charge from a previous invoice.

Debit invoice

A debit invoice notifies the buyer of their current debt obligations. It’s also called a debit note. It’s issued when you need to increase the amount a customer owes you. For example, they ordered a product and received an invoice from you, but increased their order to a higher amount later.

Commercial invoice

Commercial invoices are crucial for international sales. They’re used for customs declaration and customs fee calculation when products are exported across international borders.

A commercial invoice needs to outline full contact details of both the issuer and the buyer, contents of the package and its value, size, weight, country of origin, the reason for export, order date, and the sender’s signature.

Interim invoice

Interim invoices are issued for milestones during a large project. They are used to receive partial payments and allow both the seller and the buyer to better manage their cash flow.

Past due invoice

A past due invoice is an invoice that hasn’t been paid on time. Late payments can have a huge negative impact on your cash flow and, as a result, your business—i.e., your ability to pay your staff, rent, and suppliers. Stay on top of your accounts receivable to avoid past due invoices.

Retainer invoice

Retainer invoices are issued to collect advance payments for products or services. They’re a form of invoicing for a deposit, allowing you to confirm a commitment from a customer.

Progress invoice

A progress invoice is issued at set percentages of completion on long-term projects like construction, custom manufacturing, or agency retainers. It helps you fund work in stages and gives buyers visibility into project costs.

Self-billing invoice

Created by the buyer, not the seller, under a prior agreement, which is common in marketplaces or large retailers. 

The buyer records the purchase price and remits payment automatically. Self-billing invoices are useful for dropshipping or arrangements in which volume makes manual invoicing inefficient. 

E-invoicing trends and compliance in 2025

The standard emailed PDF invoice—which replaced the printed-and-mailed version a generation ago—is now becoming obsolete. Government regulations and increased profits are driving the adoption of e-invoicing worldwide. Here’s why that matters for retailers. 

Global adoption and market size

Regulatory pressure and financial upside are driving adoption of e-invoicing. The European Union, for example, is making B2B e-invoicing mandatory as of July 2030. The old “send a PDF and report later” approach is being replaced with structured invoices that transmit data straight to the tax system.

Businesses were projected to generate about 560 billion invoices in 2024, but only 125 billion (22%) were transmitted electronically, according to a May 2024 industry report from Peppol. Considering the majority of invoices are still sent via email attachments and PDFs, there is plenty of room for the market to evolve.

Analysts report the global e-invoicing market reached $15.9 billion in 2024 and will hit $68.7 billion by 2033. An Avalara and Cebr study estimates that full global adoption could unlock $616 billion in economic gains, with 83% flowing to small businesses thanks to faster payments and lower costs. 

Key country mandates retailers should watch

Since the industry is changing quickly, it helps to know which national deadlines are coming up first, especially those that can hit retailers with fines or blocked VAT deductions. 

The countries below have either enacted e-invoicing mandates or are moving toward enforcing validation rules exporters must follow.

• European Union (ViDA package): Member states can impose mandatory domestic e-invoicing without EU approval starting April 2025. Intra-EU B2B e-invoices become mandatory in July 2030 with near-real-time reporting.
• France: The phased rollout starts in September 2026 for large enterprises. By September 2027, all businesses operating in France must be able to issue and receive e-invoices. Non-compliance can lead to a fine of €15 per invoice.
• India: From April 1, 2025, taxpayers with an annual turnover of 10 crores (~US$11,500) and above will not be allowed to report e-invoices older than 30 days from the date of the invoice.
• Mexico. All taxpayers must issue CFDI e-invoices validated by SAT as of April 2023 or face fines.

Benefits: Cost-savings and faster payments

A fully automated invoicing system makes life easier for everyone involved. You’ll remain compliant, your books will be easier to reconcile, and vendors will get paid faster. 

Bottomline’s State of ePayables report found that e-invoicing cuts processing costs by 78%. AP teams spend an average of $2.78 per invoice versus $12.88 for manual processes, saving about $10 every time they bill.

The same research shows that automation reduces cycle time from 17.4 days to just 3.1 days, freeing up cash flow and resources. Payment speed follows the same pattern. B2B companies that switched to AR automation report getting paid 36% faster than with legacy processes, reducing days sales outstanding (DSO) and gaining earlier access to working capital.

How to make an invoice

There are several ways to create an invoice, including using invoicing software or creating one manually.

Natively in Shopify admin

Create a draft order in your Shopify admin and send it as an invoice to your customer. If you use Shopify POS Pro, you can save a cart from any retail location as a draft order. This will send your customer a bill by email with a direct link to pay.

Using invoicing software

There are many invoicing software programs available that allow you to create professional-looking invoices quickly and easily. 

These programs typically include templates that you can customize with your company information and logo, as well as features such as the ability to track payments and generate reports.

Three retail-friendly options include:

• Sufio: Auto-creates and emails legally compliant invoices, credit notes, and payment reminders in over 100 countries. Plans start at $7 per month for 15 invoices. 
• Vify: Sends PDF invoices automatically (or on a schedule you set) and lets customers download past invoices from their account portal. Free for up to 50 invoices. 
• Custom & Draft Orders For POS: Lets you create or edit draft orders directly in Shopify POS, add them to the cart, and convert them into invoices or receipts at checkout. Unlimited access is $15 per month.

Creating an invoice manually

To create an invoice manually, you will need to use a word-processing or spreadsheet program. You can use a template or create one from scratch. 

Be sure to include all of the necessary components outlined above, and proofread your invoice carefully to ensure that it is accurate and professional.

Tips for creating effective invoices

Follow these tips to make sure your invoices are easy to understand and to get paid quickly.

• Make invoices one page (when possible) and use a font that’s easy to read.
• Incentivize early or on-time payments. 
• Create an invoice you can duplicate and reuse to minimize repetitive work. 
• Look for opportunities to issue recurring invoices for repeat transactions. 
• Set up an automated system that can be triggered by a new order. Many Shopify apps make this easy and completely hands-off.
• Offer various online payment options like credit and debit cards, mobile payments, bank transfers, and installments. 

Functions of an invoice

Invoices are the backbone of your cash flow, inventory tracking, and business accounting. They contain all the important information about a sale on a single page:

• Products you sold and their individual cost
• Total amount and sales tax
• Customer’s information
• Your contact information
• Payment terms
• Delivery details

However, there are other reasons for using invoices.

Collect payment 

Invoices enable you to get paid—plain and simple. They outline your payment terms (like on receipt or by the end of the month), which helps you predict your cash flow and plan activities and expenses accordingly.

Track sales

Invoices also allow you to track sales, including the exact products and amounts sold, as well as the number of sales you made in a given period. This is useful for understanding the impact of your marketing activities on your sales, as well as planning for the next period.

Accounting and tax purposes

Invoices play a vital role in your bookkeeping. They help you keep track of your store’s revenue for tax purposes, as each invoice is a tax document. Many jurisdictions (e.g., EU, India, Mexico) require validated electronic invoices for deductible input tax credits.

Legal proof and dispute resolution

Invoices also serve as evidence if a customer contests delivery, quality, or amount owed. Courts and insurers can request invoices when adjudicating commercial disputes.

Business analytics

Analyzing invoices can help you better forecast demand for your store for specific seasons or based on yearly trends. This also means you can track and adjust your inventory to improve cash flow and avoid overstocking or running out of a popular product.

Common invoice mistakes to avoid

When you’re sending invoices, making a mistake can cause you to lose money. Typically, it’s something simple, such as overlooking a payment method or not collecting the right taxes. 

Pay attention to these two common errors so they never get in the way of your cash flow.

Missing payment method flexibility

If customers open up an invoice and can’t pay the way they’d like, chances are they’ll have an issue. You may need to chase the customer for alternative payment methods, which can extend DSO and disrupt your cash-flow forecasting. 

In each invoice, include multiple payment options, like card, ACH, bank pay, mobile wallet, or even buy now, pay later. 

Incorrect tax or compliance data

With more governments rolling out real-time e-invoicing, the cost of an error can impact your profit margins. Fines accrue quickly and can block VAT/GST deductions, and some customers will refuse payment until a corrected invoice is issued.

Use invoicing software that inputs mandatory tax fields (like tax ID and VAT rate) automatically to ensure you never send an invoice missing required details. 

Start writing your own invoices

Whether you’re gearing up to issue your first invoice or your 100th, use these tips to make your invoicing system efficient, make payments simple for your customers, and get paid on time.

Using e-invoicing software that helps you keep track of all your sales, invoices, and payments will help you simplify your financials. Shopify POS lets you manage invoices and more, and works whether you sell online, in-store, or both.

Issue electronic invoices in just a few clicks, right on the spot, with Shopify’s invoice generator (it’s free!). Enter all the details to generate and send clean, professional invoices.