How to write an invoice as an independent contractor

As an independent contractor, you can manage your own hours and clients. But one thing that many independent contractors need to worry about is ensuring they get paid in full and on time. An astounding 61% of all late payments are the result of incorrect invoices.¹

Learning how to master the art of creating an invoice can help independent contractors get paid on time. This guide will go through what independent contractor invoices are, and how to create them.

What is an invoice for an independent contractor?

At its core, an invoice is simply any sort of bill that represents an obligation of payment from one party (usually deemed “the payor”) to another party (usually deemed the “payee”). Invoices are broadly used, across many different industries and many different countries, to indicate who owes whom, when they owe them, and how much they owe them.

In most cases, an invoice creates a legal obligation to for the payor to either dispute the invoice or make a payment. Developing better invoicing practices is essential for any independent contractor who wants to make sure all payments (both incoming and outgoing) are made correctly.

Why are invoices necessary as an independent contractor?

Invoices make it easy for the payor to know the exact amount they owe the other party, as well as know the other terms involved with the payment, such as when the payment is due and what the preferred payment method will be.

In other words, invoices play an essential role in establishing a “paper trail” between the payee and payer. Even once the invoice has been fully processed and the payment has been received, holding onto invoices can also be useful for paying taxes, creating future budgets, and addressing other financial needs.

The existence of an invoice can help prove that someone was alerted of a payment obligation and, in some cases, that this payment was formally agreed to. This can be very important in a court of law.

How do I create an invoice as an independent contractor?

There are several different ways you can create an invoice as an independent contractor. One of the basic ways to do this is simply using a Microsoft Word document, or equivalent.

If it's the first time creating an invoice, consider using an invoice template or the free invoice generator from Wise to help you get started. Additionally, make sure to save the invoice as a PDF, which is more professional and cannot be (directly) altered.

If you currently use any sort of accounting software, you’ll have plenty of other options for creating invoices. Whether you are using QuickBooks, Xero, or anything else, most will have built-in invoice generator that are usually fairly easy to use.

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Components of an invoice

There are a few widely used invoicing best practices that can help ensure the invoice created is both accurate and useful. These can include:

• The Invoice Date: this date represents the date the invoice was issued, not necessarily the date the work was completed.

• Payee and Payer: with a quality invoice, it should be very easy to see who currently owes money and who is entitled to receive it.

• Description of the Goods and/or Services Provided: if there are multiple goods/services provided, it’s a good idea to assign a specific cost to each of them.

• Total Amount Due and Payment Due Date: this is probably the most important component of the invoice, allowing both parties to know when they can expect the obliged payment to be made.

• Currency Used for Invoices: this is especially important for international payments, where the two parties involved might typically use different currencies. Currencies could also include alternative payment options, such as cryptocurrencies and account credits.

• Payment Method Used for Invoice: whether the payment will be made with a physical check, ACH transfer, PayPal (or comparable), or any other payment method, be sure to specify how the payment will be facilitated.

• General Terms and Policies: the invoice should outline any relevant invoice payment terms and policies that might apply, such as whether there is an additional fee for using a certain payment method or if there is a penalty for making a late payment.

Keep in mind—this is just a general list of the points you’d likely want to incorporate in a standard invoice. If your business is in a highly-specialized industry (or is otherwise unique), you may need to incorporate some additional terms.

How long does it typically take an invoice to be processed?

One of the most common invoicing questions for independent contractors is how long will it take me to get paid?

Naturally, anyone who has issued an invoice will want to be paid as quickly as possible. However, with some exceptions, the use of immediate or same-day payment is not very common. Here are some of the most common invoice payment schedules:

• Net 15 or Net 30: when the term “net” is used in the payment structure, this means the payment will be made X number of days after the invoice has been issued. For example, if you issue an invoice on the 1st using the Net 15 structure, that means you should be paid by the 16th.

• Advance Payment: in some cases, it might be appropriate to receive payments in advance. This can include if there are payment issuers from the buyer, international or economic issues, or work connected to a pre-established contract.

• Split Payments: in some cases (such as new or informal partnerships), contractors might want to create a split payment invoice where they receive part of the payment before the good/service is provided (comparable to a downpayment) and part of the payment after delivery.

• End of Month: with this structure, payments will be made at the end of the month (or another pre-established day), regardless of when the invoice was delivered.

These are just a few of the invoicing structures a contractor might consider using.

Things to consider when deciding payment terms

The “best” payment structure for a given contractor invoice will depend on several factors. For example, if the payment is being made internationally, contractors might want to use a Net 7 term structure to help minimize the risk of currency changes and also accelerate payment.

Other factors worth considering might include how urgently the payment is needed, the status of the relationship between the payer and the payee, access to credit, and more. This means that a single contractor might end up using several different invoicing structures among their various clients.

How to determine your late invoice fee

One of the most difficult things for business owners—especially new business owners—to determine is how to set their invoice late fee. On one hand, it's important to ensure that invoices are paid in full and on time.

But on the other hand, you don’t want to impose a fee or fee structure that would scare your clients away (for example, telling your clients that the invoice would “double the day it is late” would likely be too aggressive.)

This means the way you word your late payment policy will be very important. Choose terms that are reasonable and wording that is straightforward and friendly. For example, “Payment is due in 30 days. A 1% monthly fee will be applied to all late invoices.” Additionally, it’s also a good idea to give your client at least one warning before the late fee is applied.

Things to Avoid When Creating an Independent Contractor Invoice

It is also important to keep in mind some of the things you’ll want to avoid. Making sure your invoices are able to meet a few basic standards will not only increase the likelihood they are correctly paid and processed, but also make your business look more professional.

Here are some of the most common invoicing problems faced by contractors:

• Failing to create a backup: as a rule of thumb, you should always just assume that an invoice will be lost, misplaced, or forgotten about. Whether your client asks for a new one or you want the invoice for your records, having a backup will always be a

• good idea.

• Delayed invoices: the longer you wait to issue an invoice, the longer it will take you to get paid. Be sure to issue your invoice as soon as you possibly can—ideally, the day goods/services are delivered.

• Incorrect details: if the information on your invoice is inaccurate, you will inevitably run into problems. For example, if you undercharge your client, they’ll likely be pretty annoyed if you ask them for _more money _later on. Even if you are using a template, be sure to double-check every detail included in the invoice.

• Unclear terms: every invoice you issue needs to be intuitive and readable. A client should be able to quickly look at the invoice and know the exact amount they owe, when the payment is due, how the payment will be made, and whether any other terms might be applied.

• Unexplained bottom line: the “bottom line” of an invoice is the total amount your client will be asked to pay. It should be clear to your clients why you are asking them to pay this specific amount—this is especially important if the invoice contains multiple goods and services.

Put yourself in your client’s shoes. What type of invoice would you want to receive?

Resources for creating invoices for independent contractors

For independent contractors, developing your own invoicing policies can be intimidating. It can be difficult to know where to start and be confident you are moving in the right direction.

Fortunately, there are a lot of great resources available that can help make the invoicing process significantly easier. Using a high-quality, customizable invoicing template can help ensure your invoices look professional and that all important details are included. You can also use an invoice generator, such as the free invoice generator from Wise.

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Source checked March 9, 2023.