As an independent contractor or small business owner, you must handle every part of your company on your own. Because there isn’t a specific workforce to handle bureaucratic responsibilities and administration, faults are more likely to occur. This can lead to a build-up of fines and penalties, as well as late bills that cause payment delays.
But, at least when it comes to drafting an invoice, it’s not the end of the world. It won’t be too difficult for you to work as an independent contractor if you’ve developed a solid procedure and know what to put on each invoice.
In this article, we’ll go over all you need to know about creating a professional invoice! By the end of the reading, you’ll know how to charge for contractor labor on autopilot, with dos and don’ts, pro advice, and important elements covered.
How To Invoice As An Independent Contractor?
This chapter offers general guidance on how to create contractor invoices and how it relates to various aspects of self-employment (professionalism, taxes, time management, etc.). If you want to get to the more specific information, look below this section.
For self-employed and independent contractors who manage their own bills, three factors are critical:
- Keeping track of time
- Excellent planning
While this is true for all employees, it is especially true for bills from independent contractors. If you charge clients by the hour, time monitoring is obviously important.
If you charge by the word, by product/service/unit, or in some other way, knowing the actual number of hours particular tasks require from your working days is equally vital. This is not only an important aspect of efficient time management, but it will also help you be more precise when estimating income for specific periods of time.
The most significant portion of the invoice form you provide to your clients is the pricing per service/item. Incorporating the time it took you to complete them gives them a more professional appearance and clarifies the cost of your labor (especially for seemingly simple tasks that actually take hours).
Because a legitimate invoice requires a number of components, good organization is essential. Develop a logical method that covers every aspect of the job, and you’ll never have an invoicing issue again! When you add consistency to the equation, you’ve covered all the bases.
The importance of covering all of the above issues is emphasized by the fact that tax filing is a primary motivation for doing so. Because clients do not withhold anything for tax purposes, independent contractors must pay their taxes on their own.
You must keep track of your revenue, business expenses, and tax deductions at all times to properly fill out the self-employment tax and pay your social security, healthcare, and income taxes.
What Should Be Included In The Invoice?
Put the following items in your invoice to avoid errors, legal problems, and misunderstandings with your clients, as well as to preserve a professional image:
- Document name – it may seem simple, but make sure to accurately identify the invoice document as such, preferably in black and with bold letters.
- Your/company logo – to offer a sense of dependability and personalization.
- Invoice number/code – To make record keeping easier, give dedicated numbers to each invoice; ordinary multi-digit numbers will suffice, but you can even construct a customized code system that includes the invoice date and customer name. This technique is more complex, but it might help you quickly discover the specific invoice you need if there are a lot of them.
- Include the sending date in the invoice date to avoid payment date (and other) miscalculations.
- Your company information — logo, company name, your name, and contact information (email, phone number, and maybe address).
- Contact information for the client — the same as in the previous phase, but now add the billing contact or billing department for larger organizations.
- List of services — Include a brief explanation of each service you performed, as well as the number of hours spent working (or word counts for writers), hourly fee, and subtotal for each service.
- Total amount owed — the total cost of the services indicated above; you may also include any applicable tax and flat rate if necessary.
- Payment conditions – specify the payment methods you accept (PayPal, Payoneer, Skrill, bank account, or something else)
- Payment timeline – Include a definite payment deadline to minimize uncertainty that may arise if you write something ambiguous, such as “15 days from the invoice reception date.”
- Late payment policy – if you have one, write down the facts and what happens if you are late.
You can personalize the invoice document as much as you want, as long as it covers the essential information. In case of making this too much for you the solution is very near, you can simply use an invoice generator to make the process quicker.
Contractor Invoicing Mistakes To Avoid
These are the most common invoice mistakes made by new (and occasionally even seasoned) contractors:
Forgetting to keep track of time
Tracking time can be as simple as putting the beginning and end times in a notebook. However, employing time-tracking software will do so much more for you: in addition to simple start/stop functionality, they can collect data that will help you learn what takes you longer than it should, when you are most productive, and so on. In terms of billing, employing software is significantly more transparent and reliable.
Having an invoice that isn’t ready
Prepare your invoice ahead of time; if you start putting it together on the day you need to submit it, you risk forgetting things or delaying payment if you send it a day or two later. It’s better to start early and simply fill it in as you do tasks according to the work order. Also, If the invoice is mistakenly sent with sales process mistakes or calculations, it’s naturally very stressful for you.
Invoices that are inconvenient to pay
Keep your invoices neat and uncomplicated with a clean and simple design – no tiny lettering or fancy typefaces. Clients may lose out on critical information if this is not done.
Hesitant to make a payment request
People make honest mistakes, and occasionally they just forget to pay what they owe when they owe it. Creating a simple message and following up as soon as the payment is past due does not have to be difficult or unpleasant.