An invoice is a formal document issued by a seller to a buyer to request payment for the products or services provided. It is a time-stamped commercial document that itemizes and records a transaction between a buyer and a seller. Invoices can be sent either before or after the completion of products or services, but in most cases, they are sent after. The purpose of an invoice is to request payment and give both parties a clear transaction record. Invoices are used as a source document for business accounting and are helpful for recording all the sales transactions a business makes with its clients. They track the sale of a product for better inventory control, accounting, and tax purposes, which help track accounts payable and similar obligations due. Invoices are an essential bookkeeping tool for business owners that are used to document sales. Here are some of the reasons why invoices are essential:

• Helps with accurate bookkeeping: Invoices record the incoming revenue to help track sales. They keep track of when a product was sold or when a project was completed and how much money was made. This data is essential for maintaining accurate bookkeeping records, and for tallying sales and expenses to calculate key metrics such as net profit, net margin, and asset turnover ratio.

• Payment tracking: An invoice is an invaluable tool for accounting. It helps both the seller and the buyer to keep track of their payments and amounts owed.

• Legal protection: A proper invoice is legal proof of an agreement between the buyer and seller on a set price. It protects the merchant from fraudulent lawsuits.

• Easy tax filing: Recording and maintaining all sale invoices helps the company report its income and ensure that its paid the proper amount of taxes.

• Business analytics: Since invoices record the sales you’ve made, they contain key information such as unit prices of goods or services, the total amounts and dates of transactions that happened, and so on. These records help you gain insights into customers’ buying patterns, payment trends, peak buying periods, bestsellers, and much more.

Invoices can be sent either paper-based or electronically. They can be paid in one go or in installments, depending on the payment terms that were agreed upon.