An invoice is a formal request for payment. It documents what work was performed, how much is owed, and when payment is expected.

**Essential invoice elements:**

- Your business name and contact information

- Client name and address

- Unique invoice number

- Invoice date and due date

- Itemized list of services or products

- Quantities and rates

- Subtotal, taxes (if applicable), and total

- Payment terms and accepted methods

- Payment instructions (bank details, PayPal, etc.)

**Why professional invoicing matters:**

- Demonstrates professionalism

- Creates clear documentation for both parties

- Reduces payment disputes

- Supports tax compliance

- Improves cash flow management

Payment terms define when payment is expected:

**Common terms:**

- **Due on Receipt**: Payment expected immediately upon receiving the invoice

- **Net 15**: Payment due within 15 days

- **Net 30**: Payment due within 30 days (most common)

- **Net 60**: Payment due within 60 days (typically for larger clients)

**Choosing the right terms:**

- For new clients, use shorter terms (Due on Receipt or Net 15)

- For established relationships, Net 30 is standard

- Enterprise clients often require Net 60 or longer

- Consider your cash flow needs when setting terms

**Early payment discounts:**

Offering a discount for early payment can improve cash flow. "2/10 Net 30" means 2% discount if paid within 10 days, otherwise full amount due in 30 days. Decide if the discount is worth the accelerated payment.

**Late payment penalties:**

Many freelancers add late fees (typically 1.5% per month) for overdue invoices. Include this in your terms upfront to set expectations.

Invoice timing significantly impacts how quickly you get paid:

**Send immediately**: The moment work is complete, send your invoice. Delays in invoicing lead to delays in payment. If you finish a project on Friday, invoice on Friday—not the following Monday.

**For ongoing work**: Establish a regular invoicing schedule. Weekly or bi-weekly invoices work well for hourly work. Monthly invoices suit retainer arrangements.

**For projects with milestones**: Invoice at each milestone as agreed. This maintains cash flow throughout longer projects.

**Best time of month**: Many companies process payments on specific cycles. Early in the month often works better than month-end when accounting is closing books.

**Best day of week**: Tuesday through Thursday tends to get faster responses than Monday (catch-up day) or Friday (winding down).

Improve your payment speed with these tactics:

**Request deposits**: For new clients or large projects, request 25-50% upfront. This protects you and demonstrates client commitment.

**Accept multiple payment methods**: The easier you make payment, the faster clients pay. Accept credit cards, ACH transfers, PayPal, and other convenient options.

**Use clear payment instructions**: Include complete details—bank name, account number, routing number, or payment links. Eliminate friction.

**Follow up proactively**: Send a reminder a few days before the due date. Many clients appreciate the prompt.

**Make invoices detailed**: Clear itemization reduces questions that delay payment. If clients understand exactly what they are paying for, they pay faster.

**Build relationships**: Clients prioritize paying people they like and trust. Good relationships lead to faster payments.

**Invoice the right person**: Ensure your invoice reaches whoever authorizes payment, not just your day-to-day contact.

Even with best practices, some clients pay late. Handle it professionally:

**First reminder (1-3 days overdue):**

Send a polite reminder. Assume it was an oversight. "I wanted to follow up on invoice #123, which was due on [date]. Please let me know if you need anything from me to process payment."

**Second reminder (7-14 days overdue):**

Slightly more direct. Reference your payment terms and ask if there are issues. "I notice invoice #123 is now 10 days overdue. Is there a problem I should know about?"

**Third notice (30+ days overdue):**

Formal collection notice. Reference late fees if applicable. Consider whether to continue working before payment is received.

**Escalation:**

For significantly overdue amounts, options include:

- Formal demand letter

- Collection agency (typically for amounts over $500)

- Small claims court (for amounts under your state limit)

- Suspending ongoing work until payment

**Prevention:**

The best strategy is preventing late payments through clear contracts, deposits, and choosing clients carefully. A client who pays slowly once will likely do so again.

Invoicing ties directly to your tax obligations:

**Track everything**: Maintain records of all invoices sent and payments received. Your accounting system should match your invoices.

**Sales tax**: Depending on your location and services, you may need to charge sales tax. Research your state requirements. Services are often exempt; physical products usually are not.

**1099 documentation**: In the US, clients who pay you $600+ annually should send a 1099 form. Your invoices provide the documentation for this.

**Estimated taxes**: As a freelancer, you likely need to pay quarterly estimated taxes. Your invoice records help calculate what you owe.

**Deductible expenses**: If you include reimbursable expenses in invoices, track these separately from income.

**International clients**: Cross-border work may have VAT or other tax implications. Consult with an accountant familiar with international freelancing.

**Consult a professional**: Tax law is complex and varies by location. An accountant familiar with freelance work is a worthwhile investment.

Sequential, unique invoice numbers are required for tax compliance and help with organization:

**Simple sequential**: INV-001, INV-002, INV-003...

Best for straightforward businesses with moderate volume.

**Year-based**: 2024-001, 2024-002, 2025-001...

Makes it easy to identify invoice age and restart numbering annually.

**Client-coded**: ABC-001, ABC-002, XYZ-001...

Useful when you want to track invoices by client at a glance.

**Date-based**: 20240115-01, 20240115-02...

Includes the date in the number for easy chronological sorting.

**Rules for invoice numbers:**

- Never reuse numbers

- Avoid gaps when possible (though gaps are generally acceptable)

- Be consistent with your chosen format

- Include enough digits for growth (use 001, not 1)

Your invoice numbers will be referenced in client payments, your accounting, and tax records—choose a system that works long-term.