What makes an invoice legal?
Invoices help to protect your business’ cash flows, maintain records and fulfil your tax obligations. You must issue invoices promptly in order to avoid any delay in the customer making payment.
It is the legal obligation of the seller to invoice the customer once the product is sold or the services are provided. There is no prescribed statutory template for an invoice, although there are prescribed standards to which you must adhere in order to make your invoice legally binding.
What details should be included in an invoice?
To comply with the law, you must make sure that your invoice is easy to understand, accurate and contains the following information:
- use of the word 'invoice' at the top of the document
- separate invoice number
- the seller's full business name (limited companies must provide the name registered on the certificate of incorporation, together with the company registration number. Sole traders, on the other hand, must provide their full name, any business name being used, as well as an address for delivery of any legal documentation)
- contact and address details of the seller
- details of the purchaser
- the description of goods sold or services provided
- price and mode of payment
- date of purchase
- date of payment
- VAT details if applicable
If a company chooses to name directors on the invoice, all directors must be named.
If both you and your customer are registered for VAT, a VAT invoice must be issued. Failure to comply can leave your business liable to a fine.
When must the customer pay?
The customer must pay you by the due date mentioned on the invoice. If there is no due date specified, then the customer must make payment within 30 days of receiving the invoice for the goods or service.
What if the customer does not pay?
If the customer does not pay and the debt is above £750, you can formally request payment by using a statutory demand. A statutory demand can be served as soon as the debt is due and it is not necessary to obtain a court judgment first.
Alternatively, you can always send the customer a Debt recovery letter once payment becomes overdue.
Can I charge the interest for late payment?
You have the right to charge interest for late payment, but you can choose not to. Under the Late Payment of Commercial Debts (Interest) Act 1998, you are entitled to charge interest on the late payment of debts by other businesses, which is currently charged at 8% above the Bank of England Base Rate. You should specify in your invoices and letters requesting payment that you intend to exercise these statutory rights. For more information, read Calculating interest on commercial debts.
If you have any concerns about invoicing, we recommend that you Ask a lawyer.