This guide explores:
The different types of invoices
How the invoicing process works
Why invoices are important for your business
What information is mandatory on an invoice
If have more invoicing queries, check out our FAQ section at the end.
You can also download your free invoice template here.
What is an invoice?
An invoice is a time-stamped commercial document that records a transaction between a seller and a buyer:
The invoice informs the buyer how much they owe and states payment terms for the transaction.
The vendor may send an invoice to a client before or after they deliver the product or service.
Types of invoices
In New Zealand, there are two distinct categories of invoices depending on whether you’re registered for goods and services tax (GST).
If your business earns over $60,000 in 12 months, you must register it for GST. If you earn less than $60,000, you can still choose to register for GST.
If your business is:
Registered for GST – you must provide tax invoices
Not registered for GST – you must use regular invoices (and not include the words “tax invoice”)
Within these categories are several types of invoices – let’s take a look at each one:
1. Regular invoice
If you’re not GST-registered, you must provide regular invoices. Your invoices won’t include a tax component, so they shouldn't include the words “tax invoice”.
If your customer asks for a tax invoice, show on your invoice that there is no GST. You can do this by including the statement “price does not include GST” or displaying the GST as nil or zero.
2. Tax invoice
If you’re GST-registered, you must provide tax invoices. Tax invoices include the GST amount for each item, along with some extra details.
You need to provide a tax invoice if:
The purchase is taxable
Your customer asks for a tax invoice
3. Pro forma invoice
A pro forma invoice is one of the most common types of invoice. They’re used to show items and prices before a sale is made or services are performed. Sometimes they’re referred to as a preliminary bill of sale, an estimate or a quote.
In New Zealand, a pro forma invoice acts as a good faith agreement to provide a product or service to completion, and the value indicated is subject to change depending on market changes.
4. Credit note
Credit notes reverse charges from previous invoices. Typically, they're issued when goods are returned or when a customer is overcharged.
5. Past due invoice
Some businesses resend invoices with an overdue stamp if they haven't been paid. If you have a late-fee policy, and this has been communicated clearly in your payment terms, you can demand penalty charges for late payment.
6. Interim invoice
If a vendor requires progress payments during a lengthy piece of work, they might send an interim invoice. Typically, they're issued every month and reflect the work done during that period.
7. Recurring invoice
If a supplier charges a customer the same amount every time, they can send a recurring invoice. These are particularly useful for monthly/quarterly subscriptions or leases.
8. Final invoice
A final invoice is the last in a series of interim invoices and confirms the completion of the work and that no other invoices will follow.
In New Zealand, the contractor must notify the client that the project is complete and payment is expected.
9. Commercial invoice
Prices on a pro forma invoice can change at any time, but a commercial invoice is legally binding. After issuing one of these, you can't change the price until the invoice has expired.
Commercial invoices are typically used to calculate the customs on imports before a deal is finalised.
Why are invoices important for New Zealand businesses?
Invoices are a notice of an obligation to pay and a record of purchase.
They allow your customers to pay you for the goods or services you've provided and maintain accurate accounting records of expenses.
Not only are proper invoices necessary for record-keeping, but they also help protect your business's cash flow and meet your tax obligations.
Invoices are also tax documents, so if they don’t comply with Inland Revenue (IR) requirements, you may get into trouble.
Done correctly, invoices help you:
Set clear payment terms
Establish a right to payment
Get paid on time
Reduce billing questions
Reduce tracking issues
Provide evidence for tax audits
How the invoicing process works
The invoicing process begins when you take on a job or receive an order and only finishes when the payment arrives.
As we’ve seen, there are various types of invoices, but in general, the invoicing process looks something like this:
Agree to do a job or receive an order
Complete the work or supply the goods
Create an invoice
Send an invoice
Check if the customer has paid the invoice:
If yes:
Match the payment to the invoice
Record the invoice as paid
Send a receipt
If no:
Chase the payment
If the invoice remains unpaid:
Record a bad debt
At year-end, report invoices and payments in your tax return.
What information is required on a business invoice?
It’s essential to know what information is required on a business invoice so that it’s valid and helps your customers pay you promptly.
Remember, there are two distinct types of invoices depending on whether you’re registered for goods and services tax (GST) or not.
Regular invoices
A regular (non-tax) invoice should include:
Your business name (at the top)
Your customer’s name and address
The word “Invoice” stated prominently at the top
An invoice number alongside the word “Invoice”
The invoice date at the right-hand side
The statement “GST has not been charged” placed prominently at the bottom
A job reference or purchase order number (if relevant)
A list of the goods or services you provided and the cost
Terms of payment details, including the invoice due date and how to pay the invoice, such as your business bank account.
Tax invoices
A tax invoice should include:
Your business name (at the top) and IR tax number
Your customer’s name and address
The word “Invoice” stated prominently at the top
An invoice number alongside the word “Invoice”
The invoice date at the right-hand side
A job reference or purchase order number (if relevant)
A list of each item sold and/or service provided, including the quantity and price
Either the:
- GST inclusive price with a statement to the effect that “all prices include GST”
- GST-exclusive price for the goods and services showing the total for the goods and services and the GST total as a separate line item
Terms of payment details, including the invoice due date and how to pay the invoice, such as your business bank account.
If you send an incorrect or incomplete invoice, it’s rendered invalid. In which case, you’ll need to replace it with a complete and correct invoice.
Invoicing FAQs
What is the purpose of invoicing?
Businesses use invoices to track what customers owe in total and monitor overall cash flow.
Correct invoices can help companies receive payment in full and on time. Plus, they serve as records of sale and provide a way to track:
The sales date of the goods or services
The amount charged for the goods or services
Any outstanding balances the client owes
Invoices provide a complete audit trail that protects your company in the event of the tax authority questioning your tax returns.
When should invoices be issued?
You should issue an invoice as soon as possible after you’ve completed the work. If you don't send invoices promptly, you may face delayed payments and significant cash flow problems.
How long should you give someone to pay an invoice?
You should define payment terms during the sales process. A typical amount of time given to pay invoices is 30 days, sometimes called Net 30. Other options include payment in advance, immediately, 7 days, 60 days or 90 days. But you can choose payment terms that make sense for your business, your customer and the transaction.
Are invoices legal documents?
No, invoices aren't legally binding documents. They don’t contain proof that a business and its customer have agreed on the terms of payment outlined in the invoice or that the business has delivered the goods or services.
To reduce the likelihood of a disputed invoice, you can create a contract that outlines the scope and details of the goods and services to be delivered. Signed contracts can serve as legal documents, help reduce misunderstandings about transactions, and speed up payment processes.
What happens when a customer refuses to pay an invoice?
First, you need to understand why the customer is refusing to pay an invoice.
Sometimes customers may disagree with specific elements of the invoice. For example, they may query whether you delivered the items listed. Some disputes can be resolved through discussion, but you may need to escalate taking legal action to collect payments if you and your customer can’t reach an agreement about the disputed elements of the invoice.
On the other hand, customers may not have an issue with the invoice — they simply haven’t paid it according to the agreed payment terms. In this situation, contact your customer and remind them to pay the invoice as soon as possible. If they still refuse to pay, you may have to take legal action.
Can I amend and resend an invoice?
As a rule, it's legal to amend and resend an invoice that's missing information or includes an error. However, if this happens, you should never delete the invoice. It's vital for auditing reasons that you hold onto records, even if they are incomplete or incorrect.
Create and send invoices today
Invoices are an intrinsic part of any business, whether you’re registered for goods and services tax (GST) or not. Done correctly, they reduce customer queries, provide evidence for tax audits, and, most importantly, help you get paid on time.
MYOB lets you create and send IR-compliant invoices from any device, so you get paid faster.
Download your free invoice template here.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.