A good invoice is a key business tool that lets you communicate your costs, fees, and payment terms. Proper invoicing is a legal and tax obligation.
Whether you write your own invoices or use a template provided by your financial institution or business software, it pays to understand your obligations and inclusions under Australian tax laws. Here’s what you need to know about invoicing.
Step 1: Know which type of invoice you need
The invoice you use depends on whether your business is registered for GST (Goods and Services Tax).
- Registered for GST: you need to write a tax invoice and include the GST for each applicable item.
- Not registered for GST: you can write a ‘simple invoice’ (or ‘regular invoice’), which doesn’t need to include the GST for each item.
Remember that not all goods and services are subject to GST. So even if you’re writing a Tax Invoice, make sure you understand when to charge GST and when to avoid it. If you’re not sure whether to register your business for GST, check the advice from the Australian Tax Office.
Step 2: Make sure you include these invoice requirements
Regardless of whether you’re writing a Tax Invoice or a simple invoice, there are some inclusions all invoices require. These are:
- A clear label that indicates the document is an Invoice (for simple invoices) or Tax Invoice (if you’re registered for and charging for GST)
- Your business name
- Your Australian Business Number (ABN) or Australian Company Number (ACN)
- A unique invoice number
- The date you’re issuing the invoice
- A brief description of the goods or services, including the quantity and unit price (if applicable)
- The total amount to be paid.
Your invoice should also include your payment terms, which are:
- Your available payment methods, such as your bank account details for direct deposits, and any other payment methods you accept, including credit card payments, cheques, or money orders
- The deadline for payment, either the date by which you expect payment, or the number of business days your customer has to pay.
- Your debt collection policies, if relevant.
Your payment terms form part of your sales contract with your customer, and are subject to contract law. For goods and services totalling more than $1,000 (including GST), you’re also legally required to include the name of the person or company making the purchase from your business. Even for smaller invoices, it’s good practice to always include your customer’s name on your invoices.
For more detailed information and some examples of invoices, check the Australian Government website for businesses.
Step 3: Understand how to include tax information
Simple invoices don’t require tax information, but a Tax Invoice needs to include the GST amount for the goods and services you’re supplying. You can either:
- Include the total price of the goods or services, with a statement that indicates ‘all prices include GST’, or
- Include the GST as a line item for each individual good or service.
GST does not apply to all goods and services. If you’re supplying a mix of GST-inclusive items and GST-exclusive items, then you need to ensure your invoice indicates the tax for each item it applies to.
If you’re not sure how to charge GST for your goods or services, you can use the handy GST calculator provided by the Australian government.
Step 4: Decide how to send your invoices
Electronic invoicing (e-Invoicing) is an increasingly popular option for small businesses. Some business software applications generate invoices automatically, and will also help you track your payments back to your invoices. This is called invoice reconciliation.
Step 5: Know how often to send your invoices
Tax invoices come with some extra inclusions and obligations. For example, if your business is registered for GST and your customer asks for a Tax Invoice, you must provide one within 28 days.
For simple invoices, or invoices under $82.50, you can usually send the invoice once you supply the goods or services, or whenever you’ve agreed to send your customer an invoice.
If you expect to supply ongoing services to a customer, you may negotiate payment milestones. For example, you may agree to send an invoice every month, or after delivery of certain key services (like a draft or prototype).
Step 6: Keep your business records up-to-date
Invoicing doesn’t stop when you issue your invoice. You still need to track the progress of your invoice until you receive payment. Keep in contact with your customers so you can stay on top of any issues that come up, and follow up any invoices that aren’t paid on time.
You may be able to automate some of this process with the right business software or tools from your financial institution, such as our automated bank feeds.
Finally, make sure you keep all your business records – including your invoices – for five years. This is a legal requirement for all businesses. The good news is that once you develop a reliable invoicing process, you can use it as a template to streamline all your future invoicing.
