You’re making sales, shipping products, collecting payments, thanking customers, and sorting taxes. Do you ever feel caught like you’re caught in a blizzard of tiny slips of paper, receipts and invoices, documents flying this way and that? Okay, I guess in e-commerce this never actually happens, because all these records are digital. (And if you ever do find yourself in a real blizzard, feel free to come visit us in the Canary Islands! All are welcome.)
Still, the feeling of blind confusion can be the same within a digital business. There’s simply a lot of activity to track. Accounting and taxes each have their own rules of proper documentation, their own suite of official documents that each have a specific context and purpose. It’s important to know what goes where — and when! — in order to save yourself trouble and headaches down the road.
A great place to start? Receipts, the basic way of keeping track of money and goods that change hands. Not all receipts are created equal. Depending on when and why you issue them, receipts actually have different requirements and even different names.
That’s what this article is for. The top four most common receipts are below. Learning about them will help you feel more at ease (and in control) in your business. Plus you just might impress an accountant somewhere… Goals?
The full invoice is the classic invoice — and the most comprehensive. It includes almost every detail you can think of about a sale. Because of that, it requires quite a few data points from your customers, and so for them, the full invoice is pretty full-on.
Nevertheless, full invoices are necessary. As a legal tax document, it allows you to stay compliant in your home country and/or the country of your customer. It’s a legal tax document.
When to use a full invoice
You could use a full invoice whenever you want to, since it will always cover your bases. But you don’t always have to. Full invoices are only required when the amount of the transaction is a larger sum, over a certain sales threshold. Receipt thresholds depend on each country.
In fact, it’s wise to avoid the full invoice when you don’t need it. They can be a hassle for your customer, plus cause friction at checkout, when the customer needs to enter so many fields of information before purchase. This is called conversion friction, and it hurts your customer conversion rate. Would-be buyers just opt out at the last moment, because they don’t want to do the tedious task of filling in a form.
What to include in a full invoice
Since invoice requirements can vary from country to country, the easiest option may be to create a template invoice that includes all the possible information.
A full invoice should always include the following pieces of information:
- Your business name and address
- The name and address of the company or customer
- A unique invoice reference number that can only refer to the invoice in question
- A date, usually the date the invoice was created (or “raised,” in accounting speak!)
- A list of the products and/or services you’ve provided. (List these line by line, with a quantity and separate cost for each)
- The amount of sales tax (also known as VAT or GST) for each item -- or the total tax amount for the whole invoice, if every item is subject to the same rate
- The total amount of the invoice
- The payment terms, such as how long a customer has to pay, the channel of payment, etc.
If you want to create a template that could suffice for almost all countries, then it’s also a good idea to include:
- Your VAT number (if you are VAT-registered)
- Your company number (if you are a registered company)
A full invoice doubles as a tax receipt
Now this is important! This could get your money back.
You can probably guess from the name, but a tax receipt is one you use when you file your tax returns, if you want to claim any deductions for the purchase.
What purchases are valid for a deduction? Charitable donations, goods and services that help you run your business, and certain other business “expenses.” The ins-and-outs of tax deductions will depend on where you file, so be sure to check with that local tax authority to make sure you maximize your returns.
On that note, the tax receipts must be compliant with the local tax authorities as well. For example, if you’re selling to customers in the EU, you must issue VAT invoices and tax receipts, which have their own quirks and requirements. Usually a full invoice will cover everything. But while you’re checking with your tax authority to see what you can get money back for, you should also double-check what information you need to supply for it!
If you’re curious to learn more about sales tax, check out our guide on digital taxes around the world.
So, here we find relief from the excess of the full invoice! If your business has an average sale price on the lower end of the spectrum, you should especially listen up.
The simplified invoice is also known as… a sales receipt. Your run-of-the-mill, everyday sales receipt. It includes some of the information above but not all. So it’s also a legal tax document, but on a diet. It’s legal lite.
When to use a simplified invoice
You can only use simplified invoices for smaller transactions, for those sales that do not pass the sales threshold. As mentioned above, the sales receipt thresholds vary from place to place, but for example the British tax authorities allow for simplified invoices for invoices totalling less than £250 (incl. VAT). In Germany, the threshold is lower at 150€.
An obvious benefit of the simplified invoice is that it requires less effort from your customer. The buyer doesn’t need to fork over so much information or spend extra time filling out check-out forms. The final product is also easier to read.
What to include in a simplified invoice
- A unique invoice number
- The date of the sale
- Your business name and address
- Your VAT number (only if you have one)
- A description of the goods or services
- Rate of sales tax charged per item
- List separately the subtotal, the sales tax, and the full total
What you don’t need to include in a simplified invoice
- The customer's name, trading name, or address
- The quantity of each item sold
- The price of each item sold
- The rate of discount per each item sold
One thing to note if you sell B2B: Your business customers will likely come back to you and ask for a full invoice. Why? If a customer buys your product in order to better their business, then they’ll want to reclaim taxes on the purchase. They can’t use the simplified invoice for this. You must provide a full invoice that includes their billing data. This can be a bit of a hassle, tending to customer requests that come back around for an upgraded invoice (especially approaching tax time!). But if you use an cloud-based accounting tool like Quaderno, simplified invoices can be automatically converted to full invoices. The data’s already saved, and the customer can retrieve an upgraded invoice on their own time.
Notice about the request of money
A debit note is a receipt that requests the return of money. As you might guess, the use case for this receipt is much more specific. Debit notes usually appear in B2B transactions, and only when there’s a debt obligation on some side. Debit notes are, more than anything, an accounting formality. They chart money for “accounts receivable” and “accounts payable.”
When a seller issues a debit note
The seller may send a debit note to inform a buyer of upcoming payments that haven’t been officially invoiced yet. Payment is only expected when a customer has received a proper invoice, so in effect, this debit note works as a strong FYI. It’s definitely not a required document, but you could use it depending on your recordkeeping practices. (And just to make sure you get paid!)
When a buyer issues a debit note
A buyer usually sends a debit note when they’re returning goods that were sent on credit. The point? To request a refund, or that their credit account is updated to reflect the return of value.
These debit notes are generally structured like a regular invoice. But in addition, the buyer will put the reasons why they’re returning the goods. This puts the grounds for refund in writing, in an official format -- which we know the accounting world loves!
Notice about the return of money
A cousin to the debit note, this receipt confirms that the money has indeed been returned. A credit note is a letter sent by the supplier to the customer to let them know that, well, they’ve received some credit. Usually credit notes are issued because of an error in the original invoice or a refund request, but there are other reasons. Those are up to you, the business owner!
One thing is clear: When a customer has paid an invoice, and you want to give back the full payment or a partial amount, you must issue a credit note.
Credit notes are in the best interest of your business, too. Since they officially record the return of money, they are legal proof that you don’t need to pay taxes on that sale. Staying on top of credit notes can help you avoid paying too much VAT (or other sales tax) when filing comes around.
What to include in a credit note
You should include all of the same information that’s on a full invoice — except here you put a “credit note” reference number, rather than an invoice reference number. Otherwise, you can structure it exactly the same way.
Hopefully this helps clear up any confusion you have around which receipts to send and under which circumstance. If it seems like a lot of work, that’s because it can be — especially if your business is selling to customers in multiple countries around the world.
The best solution is to use an accounting and tax tool that automates these receipts for you. Quaderno can do it. Quaderno will issue the right receipt to every customer, no matter what variables you throw at it: foreign country, foreign currency, different tax rates, B2C or B2B. Heck, Quaderno will even send receipts in your customer’s own language. The point is to save you time and spare you trouble, but to also delight your customers.
Please feel free (well, it is free) to give us a try. You can sign up for Quaderno’s free trial and see how you like our DIFY automated accounting.