Can I send an invoice to my co-founder?
Writing an invoice: A guide for the self-employed and entrepreneurs
I can still remember very well the first time I was allowed to write an invoice as an entrepreneur at some point in my life. As much as the joy about the first sales was, the uncertainty came just as quickly. What do I have to consider when writing the invoice? What must be on the bill and what not? And is a PDF invoice sufficient or do I have to send the document by post? What if the customer doesn't pay?
I will answer all of the answers to these and other questions about invoicing in this article. As a co-founder of accounting software, I didn't do anything else for many years. You can find out more about this below.
In this article you will learn how to write an invoice correctly, what is behind other terms relating to the invoice (e.g. credit note, cancellation invoice, etc.) and how - or with which tool - you can simply write an invoice nowadays.
Disclaimer: I am not a tax advisor and the information here is my personal point of view. If you need binding information or advice, I recommend a tax advisor.
What is an invoice and when can I write an invoice?
An invoice is a document that is created as a request for payment or proof of payment for a service provided. So you need a customer to whom you have either sold a service or a product.
The bill is usually to Provision of the service. For example, if a customer has booked you firmly for a longer project, the invoice is usually sent after completion. If the project takes longer, partial or interim invoices are also common.
For retailers, especially in e-commerce, every customer must receive an invoice. The time to write an invoice is usually after the purchase. However, this is not an obligation, it can also be before the payment. This is often the case, for example, with the payment method "transfer". Here, too, it is customary to only write the invoice after receipt of payment, as soon as the package can be sent. In practice, the payment request is mostly informal, e.g. via an e-mail and a note in the checkout.
Reading tip: Write EU-compliant invoices for Amazon retailers and e-commerce users
Corporate customers are an exception to this practice. Since the risk of fraud (payments will not be made or withdrawn) is not very high here, the products are often shipped before payment. However, there is no statutory regulation at the time the service is provided. The invoice can even be written within 3 years after the service has been provided.
Write mandatory information on the invoice
If you want to write an invoice, you can enjoy the design, but you should pay attention to the mandatory information. These are set out in Section 14 of the Sales Tax Act (UStG) in Paragraph 4 and include:
- name and address of the biller and the customer
- tax number from the tax office or the sales tax identification number,
- the Date of invoiceon which the invoice was issued,
- an ongoing, one-timebill number with one or more series of numbers,
- Product or service with name and quantity (e.g. piece or hour) that was delivered,
- Time of performance or period of performance (when was the performance provided?),
- the according to tax rates and individual tax exemptions Remuneration for the delivery, as well as any reduction of the fee (discount) agreed in advance,
- the one to applytax rate as well as the tax amount due on the consideration (or, in the case of a tax exemption, an indication that a tax exemption applies to the delivery or other service).
Difference between a credit memo and an invoice
A special feature is that not only you as the service provider can issue an invoice, but also the customer (service recipient). In this case, however, the document according to paragraph 2 sentence 2 of the aforementioned §14 UStG must contain the information "Credit" contain. In front of the tax office, a credit note and an invoice are synonymous. If the invoice is created by the service provider, it is called "invoice". If it is provided by the recipient of the service, it is called "credit note".
In practice, credits are usually created by affiliate partners in affiliate marketing. There are very practical reasons for this and it is also not uncommon with other online business models. Instead of asking each customer to write an invoice, the company prefers to create uniform credits with every payout. Jimdo does it in practice with affiliate partners, for example.
Difference between a credit note and an invoice correction
The credit note is created by the service recipient and thus replaces the writing of an invoice by the service provider (the service provider). Anyone who receives a credit note for a service rendered is no longer allowed to write an invoice.
A Invoice correction however, it always refers to an existing invoice that was previously issued. This can be the case if an invoice line has to be corrected. If this has already been sent to the customer and is recorded in the accounting, the formally correct way for the old invoice is one Cancellation invoice and to write an invoice correction with a new invoice number. If the invoice has not yet been posted for accounting purposes, a simple correction of the existing invoice is sufficient.
Note: In 2013 there was a legal adjustment that added a new mandatory requirement for the linguistic regulation. Since then, an invoice that has been completely or partially corrected can no longer be called a credit note, but can only be called a credit note within the meaning of sales tax law (see above). Since then, all corrections to an existing invoice must be labeled as an invoice correction, cancellation invoice or correction invoice. This should create more clarity in terms of the terminology.
A new invoice number is only required if the invoice has already been sent to the customer and recorded there (and by yourself) for accounting purposes. In this case, the old invoice will be corrected by a cancellation invoice and a new invoice correction. However, this must then contain a reference to the original invoice.
Incidentally, corrections to an invoice can only be carried out by the service provider (i.e. the invoice creator). Changes by the recipient of the service (the customer) are not recognized by the tax office and are not permitted under any circumstances.
What happens if mistakes are made while writing the invoice?
Admittedly, with all the terminology you can get confused and make mistakes. However, these should be avoided if possible when writing the invoice.
An incorrectly created invoice, credit note, cancellation invoice or any other tax-relevant document mean that the input tax deduction can no longer be claimed. In simple terms: the sales tax that you show on invoices must be paid in full and cannot be "offset" against sales tax from incoming receipts.
If this comes to light during a tax audit, additional tax payments can result. You can read more about input tax deduction here.
That is also the reason - and also because it is important for entrepreneurs to keep their finances under control - that accounting should be taken seriously even for the smallest entrepreneur. It's all not rocket science, but everyone should understand and internalize the basics of accounting.
How does the small business regulation work when writing an invoice?
The small business regulation is great for everyone who makes very little turnover (less than € 1450 turnover per month, or € 17,500 per year) and who hardly have any expenses.
Simply put, no VAT is shown on small business invoices and a corresponding note is noted on the invoice. The gross amount therefore corresponds to the net amount.
The disadvantage: If you, for example, as the operator of an e-commerce shop, buy products and have expenses for your company, then you could only claim (= reclaim) the sales tax that you pay on the receipts from the tax office if you are not a small business owner are. How exactly this works and why the small business rule does not always make sense when writing invoices is explained again in this video:
Writing an invoice: This is how it works in practice
who Write an invoice Searching on Google, they often find terrible Word or Excel templates, which I personally would like to advise against. Because...
- Maintaining and filling out these templates is very error-prone (e.g. people quickly forget to count up the invoice number), and
- Invoices and receipts must be archived properly in accordance with GoBD. These templates do not do that either.
Because invoices usually have to be stored securely for 10 years by law. In addition, they must be able to be found again quickly so that they can be presented "in a reasonable amount of time" in the event of a tax audit. I therefore generally recommend using online tools to write and archive an invoice. These help to properly record all the data for the invoice and at the same time create a professional design. In addition, the documents are archived there securely and online. Personally, I find data backup in the cloud to be much more secure than on a local computer. I always assume that my computer will break or be stolen tomorrow. Precisely because I travel a lot as a digital nomad, the potential for damage or loss is great. I have therefore been relying on online data backup for years.
It is important that you choose a provider who enables GoBS-compliant archiving and also agrees an order processing agreement (AVV) with you (which became mandatory with the GDPR in May 2018).
My recommendation for writing an invoice and archiving all documents is FastBill. The Frankfurt company even offers two solutions for every budget:
FastBill's free invoice template
The free invoice template from FastBill is great for everyone who wants to write their first invoice, but certainly doesn't want to pay regular costs for an accounting software yet.
The invoice template sends the user through all the required fields in just a few steps and gradually collects all the data required for a professional invoice.
Of course, there is only a limited range of functions with a free tool:
- No own logo
- No own invoice design
- No saving of data (e.g. you always have to re-enter the customer data, even if you regularly send the customer an invoice)
- A FastBill logo will appear at the bottom of the invoice
- You have to enter your email address in order to download the invoice
The result is still impressive. Writing such an invoice (without a draft as a watermark) takes just under 5 minutes with the FastBill invoice template.
My recommendation: Write FastBill for the invoice and for your complete bookkeeping
My actual recommendation is the "real" FastBill. The software is available from € 7.99 per month and ensures that all worries about accounting disappear from day 1.
Because FastBill can do more than just write invoices. With that you can
- Manage customers
- Record receipts (expenses)
- Online banking (automatically assign payments to invoices and receipts)
- complete the advance VAT return
- (DATEV) Send exports to a tax advisor (if you use one)
- and also create invoices in your own professional design (with a template editor).
If you want, you can even offer your customers to pay their bills online right away. In this video I will guide you through FastBill:
Disclaimer: I am a co-founder of FastBill and I know how challenging bookkeeping can be. For many years I and my team have done nothing but make the accounting and paperwork as simple as possible, especially for small businesses and the self-employed. If you're not sure about FastBill, check out my bookkeeping software comparison for more solutions.
But I would be very happy if you would like to try FastBill at least once for free. You can do that here for 14 days without any obligation.
Conclusion: Writing an invoice is not rocket science
... but it's also not the only discipline in accounting as an entrepreneur. My experience and recommendation is to take care of a proper complete solution (like FastBill) at an early stage. As soon as the sales show, I would definitely advise a tax advisor. They are usually not as expensive as expected. You can read more about it here.
You can find a beginner's guide to bookkeeping for entrepreneurs here.
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