Contractor and Freelancer’s Guide to Invoicing

Invoicing is a crucial aspect of maintaining a healthy cash flow for contractors, consultants, coaches and freelancers.

A well-organised invoicing process helps avoid costly mistakes, ensures prompt payment, and fosters positive client relationships.

This guide to invoicing, prepared by the experts at IN Accountancy, covers all essential aspects of contractor invoicing. From the necessary details to include in your invoices to best practices, software recommendations, key terminology, and common mistakes to avoid, we’ve got you covered.

What Information Should Be Included in a Contractor’s Invoice?

To comply with UK government regulations, every contractor’s invoice should include the following:

1. A unique invoice number or reference code
2. The billing date (when the invoice is created)
3. The payment due date
4. The full names and addresses of both the client and the contractor’s business
5. Clear descriptions of all products and services billed
6. The price and quantity of each product or service provided
7. If VAT registered, VAT should be shown separately and the contractor’s VAT registration number must be included on the invoice

Additionally, ensure that the word “invoice” is prominently displayed.

What are the best invoicing practices for contractors?

Adhering to the following best practices can help maintain professional standards and secure your payment processes:

1. Pre-arrange Payment Terms: Clearly outline payment terms and fee calculations within each contract. Include costs for remedial work or adjustments and potential circumstances for changes.
2. Timely Invoicing: Establish and adhere to invoicing and payment timescales in your terms and conditions.
3. Self-billing: Consider self-billing, where the client generates the invoice based on approved timesheets, and pays the agreed amount before sending a copy to the contractor for record-keeping. This method is particularly useful for VAT-registered contractors but can be beneficial for all.

What Invoicing Software is best for Contractors?

Invoicing or accounting software such as Invoice to go, Xero or QuickBooks can help you streamline and automate your invoicing process, reducing the risk of errors.

Digital and app-based banks like Starling and Monzo, as well as more traditional banks such as HSBC, Barclays, and NatWest, also offer sophisticated invoicing software.

What is the difference between Charging Disbursements and Charging Expenses?

Understanding the difference between expenses and disbursements is crucial:

• Expenses: Costs incurred while delivering contracted work (e.g. travel costs or materials).
• Disbursements: Payments made on behalf of the client, unrelated to the work performed (e.g. fees or subscriptions paid on behalf of a client ).

It’s particularly important for VAT registered contractors to understand this difference, as VAT is charged on top of expenses, but disbursements are simply passed on to the client for payment.

What are common mistakes to avoid when invoicing?

Mistakes in invoicing can have serious consequences, such as underpayment, delays, loss of trust in the contractor-client relationship, and, in the worst cases, an investigation by HMRC for non-compliance

Here are the most common pitfalls to be avoided:

• Omitting VAT where required or miscalculating tax amounts
• Failing to keep clear records and receipts
• Not adhering to a set invoicing schedule
• Ignoring contract terms and conditions related to payment
• Not updating and clearly stating payment terms in contracts
• Lacking sufficient credit control for sales on credit
• Choosing inappropriate accounting methods (accrual vs. cash accounting)

What is The Best Way to Help with Contractor Invoicing?

To secure and streamline your invoicing process, consider hiring an experienced accountant and investing in high-quality invoicing software tailored to your needs.

IN Accountancy have been providing tax and accountancy services to contractors and freelancers for over 10 years.

Contact us today to arrange a consultation and discuss how we can support you or to request your free invoicing template 🙏🏽