Invoicing and payment terms

Getting your invoicing system and payment terms right can be key to a healthy cashflow. You need to make sure your customers understand how much and when they need to pay. They're more likely to pay you on time if these terms are clearly set out in writing from the start.

Information that invoices must contain

You must clearly display the word 'invoice' on the document and include the following information:

• a unique identification number
• your company name, address and contact information
• the company name and address of the customer you are invoicing
• a clear description of what you are charging for
• the date the goods or service were provided (supply date)
• the date of the invoice
• the amount being charged
• VAT amount if applicable
• the total amount owed

Limited companies

Limited companies must have the following additional information on their invoices:

• the full company name as it appears on the certificate of incorporation
• any business name used in your business
• an address where any legal documents can be delivered to you if you're using a business name

Sole traders

A sole trader must have the following additional information on their invoices:

• the trader's name or any business name being used
• an address where any legal documents can be delivered to you if you're using a business name

VAT registered businesses

If you're registered for VAT, you need to put VAT information on your invoices. It's best practice to set up records and invoice correctly for VAT from the time your business starts.

Visit GOV.UK for information on VAT sales invoices.

Payment terms and conditions

Explain your terms and conditions to customers from the start. You can send out a written confirmation of their order with a copy of your terms and conditions of sale. This gives them the chance to discuss any problems they have before you supply goods or services. You should also print terms and conditions on the back of your invoices.

Electronic payment

You could consider encouraging electronic payment in your terms and conditions. For examples, using BACS or CHAPS. This prevents the risk of bounced, missing or lost cheques.

Consider sending your invoices electronically - with a copy of your terms and conditions - it can be much quicker than post.

Early payment discounts

You might encourage customers to pay early by offering a discount for early payment. The discount should depend on the profits you're making on orders. This can help:

• speed up payment
• improve cashflow
• reduce bad debts