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.
To comply with the law, you must make sure that your invoice is easy to understand, accurate and contains the following information:
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.
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.
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.
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.