Invoice numbers: What to pay attention to
IONOS editorial team6 mins
In the U.S. there are no specific legal requirements for the creation of an invoice, but finding an effective method of systematically recording your transactions is a good idea for any business. Employing an invoice numbering system is a convenient and easy way to keep your finances in order and simplify your accounting records.
The point of an invoice number
An invoice number is simply a way to uniquely mark an invoice to help keep track of your business transactions. Consecutive or sequential invoice numbers help to ensure that each invoice is unique and each business transaction can be clearly and comprehensively organized and referenced – for accounting reasons as well as customer support. While a receipt is generally used as proof of payment and therefore documents a finalized sale, an invoice is a request for payment that includes more detailed payment or contact information in addition to pricing information for the goods or services rendered. Having a proper invoice numbering system helps you avoid duplicate payments that can amount to large losses for your company.
If you do business with recipients in other countries subject to stricter invoice regulations, having a correct invoice number is very important. Taxation and VAT laws are determined by country, so creating a proper and correct invoice template and numbering system could potentially spare you or your customers from a massive legal headache.
Invoice number format
How you assign your invoice numbers is entirely up to you, based on your needs and which method appears most suitable or makes the most sense. In general, though, the structure should follow such that invoices can easily be filed or located based on the numbering system, with no gaps or skips in the sequence.
The most common structures for assigning invoices are sequential, chronological, by customer number, or by project number. Accounting software will generally have sequential numbering set as the default invoice numbering system, starting at ‘1’ and moving up numerically (though you can specify a different start point if you wish).
For example, if you would like a longer invoice number of five digits and specify ‘10000’ as your starting point, then your invoice numbers will progress like this:
First invoice: 10000
Second invoice: 10001
Third invoice: 10002
Etc.
When entering the invoice number in your records, be sure to include the name of the customer and the amount of the invoice for quick reference. If your business deals with a large number of orders, though, or enjoys orders from repeat customers, then tracking invoices sequentially could become overwhelming.
Formatting your invoices chronologically allows you to track invoices by the date of the order. An invoice generated on May 23, 2017 for customer number 4602, for example, could look like this:
05232017-4602-00
The first number in this identifier is the date, followed by the customer number, and the unique sequence number. The last number is important if you have multiple invoices for the same customer on the same date – in that case, the next invoice would be numbered 05232017-4602-01. The date format can be selected from a variety of options as well. The example above uses the DDMMYYYY format, but alternate options include MMDDYYYY, DDMMYY, YYYYDDMM, or YYDDMM, among others.
When generating invoice numbers based on the customer number, you can choose whether or not to include any date information. Either way, the number will begin with the customer number and then be followed by the date (if desired) and the sequence number. No matter how you decide to structure your invoice number, the sequence number always needs to come at the end. This makes it easiest to find and to differentiate from the others in its sequence.
Example: 4602-05232017-01
Or
4602-0001
If your invoice number doesn’t include the date, be sure to add more digits to the sequence number to avoid running out of sequence options.
The last option that we’ll present for assigning invoice numbers is according to project number. This is most useful for companies that take on projects where that number is the most important reference for the work. These invoice numbers will include the project number, customer number, and sequence number, with the sequence number at the end. An invoice numbering system organized by project could either begin with the customer number:
4602-PERF3847-01
Or the project number:
PERF3847-4602-01
The system that you choose for numbering your invoices should correspond to your most prominent needs to make it as easy as possible for invoices to be located for referencing, and the sequence number must always be last to help you keep track and avoid duplication. Lots of accounting software provides an invoice number generator to help with this task.
Invoicing without an invoice number
Because invoices are not actually required under U.S. law, the creation of an invoice is only done at the discretion of the business. If you are dealing only with domestic clients and have an alternative method of tracking your business transactions, then a properly numbered invoice is not a necessity. However, as mentioned before, invoice regulation is very common in other countries – particularly those in the EU. Be sure to check the laws and regulations of any other country that you may be doing business with in order to stay compliant and avoid any trouble for you or your customers.
Invoice number errors: What to do?
Mistakes or incorrectly numbered invoices be problematic, and may result in duplicate invoice payments. Correcting these errors is imperative if you want to keep your records organized and avoid future confusion or potentially costly consequences.
Typos can easily occur, and spelling errors in the company name or other more trivial information on the invoice doesn’t necessarily require correcting. If the invoice number contains an error, though, failing to correct it may prove painful. A general rule of thumb in accounting is that finalized invoices should never be deleted, so when correcting an error it’s recommended to create a new invoice with the correct information and send that to your customer along with a note of correction, so that evidence of the correction can accompany all of the evidence in both your books and the books of your customer, therefore avoiding any future confusion. If the customer has already paid, make a correction adjustment on a future invoice, or issue another invoice or credit correcting the mistake.
One of the best ways to prevent invoice numbering errors is by running a monitoring tool that constantly checks for duplicates and so helps you catch errors before their invoices are finalized. If you use the sequencing system provided by your accounting software, the issue of duplicate or missing invoice numbers is avoided entirely – if not, and an error does occur, your software should have a tool to help you locate and solve it.
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