An Invoice is among the most frequently used commercial documents. It won’t be wrong if we say that it is the most frequently sent and received external document among businesses. As the business, even in its simplest form is about buying or selling goods and services. The primary document used to record these transactions is the invoice. In the following paragraphs, we will try to find why businesses need to care about invoices.
What is an Invoice?
An invoice is a document that records an itemized transaction of goods and/or services against a sum of money between the seller and the buyer of the same. The invoice is date-stamped and usually contains the payment and other terms (if any). The invoice is drawn by the seller upon the buyer.
Importance of Invoice
An invoice is an important document for both buyer and the seller. It acts as proof of purchase/sales for both parties. In business, an invoice is not merely transaction evidence, it serves as an important document for multiple reasons.
Let’s take a look at the importance of an invoice for a business.
Importance of Invoice for Business
In business, the invoice is important:
- For Record Keeping
- For Legal Purpose
- For Accounting Purpose
- For Tax Record
- For Inventory Management
- For Borrowing Purpose
- For Management Purpose
For Record Keeping
An invoice serves as chronological proof of purchase/sales. In case of any discrepancy, issue, it acts as time-stamped evidence of the transaction. It is also handy for warranty, support, refund related issues.
For Legal Purpose
In case of any legal dispute, an invoice serves as legal proof of the transaction. A valid invoice must have all the relevant information like date, buyer and seller information, descriptions of goods and services, quantity, amount, signature, and stamps to be considered a valid legal document.
For Accounting Purpose
An invoice is also very important for the internal bookkeeping of the business. It is the first document of a transaction in most cases. Especially in small businesses where purchase order and delivery receipts are not maintained. In these cases, the invoice is the only document that serves the purpose. In a deferred payment scenario, it becomes more important to record and keep the relevant invoices properly.
For Tax Record
An invoice serves as proof of expense or income in tax filing. For sales tax and other duties and refund claims, it is necessary to keep relevant invoices.
For Inventory Management
The invoice serves as an important document for inventory management. In the absence of automated accounting software, the invoice is a critical document for inventory management.
For Borrowing Purpose
Sellers can get short-term borrowing (invoice financing/factoring) against receivable invoices. This helps them in improving the cash flows. To get invoice financing, proper invoicing is necessary.
For Management Purpose
The payment duration for an invoice is normally of a short span. So for both seller and buyer, it acts as a short-term asset/liability. For effective cash flow management, it is necessary to have a proper insight into payable and receivable invoices. With proper invoicing practice, management can make informed financial decisions.
Most of the above reasons are easily relatable to any business entity. That is why a business always needs to care about invoices.
Invoice processing automation is the need of every business organization that requires significant invoice processing in their day-to-day business. Considering the above issues, many are not covered within the scope of invoice processing. Pre and post invoice processing functions along with the invoice processing are covered by an umbrella term, ‘Invoice Management’. Invoice management effectively covers the whole invoice ecosystem. Invoice management begins before an invoice is generated or even before the actual transaction and continues even after the invoice is processed.
InvoiceMate by MateSol is the world’s first blockchain-based invoice management system. InvoiceMate offers unmatched trust and efficiency to every stage of invoice management. To learn more about this powerful future-proof invoice management system and to try it by yourself, please feel free to write us at: