Plain English
What is an invoice?
Imagine buying a washing machine and arranging delivery. The seller sends you an invoice showing the machine, the delivery charge and the total bill.
An invoice is the written breakdown of what you are being charged. It identifies the seller, describes the goods or services and sets out the price. It also gives you a reference for discussing the bill and information about payment. [1] [2]
You might receive one for a household purchase, a plumber's work or equipment bought for a business.
How is the total worked out?
Here is a fictional UK example. Assume VAT — Value Added Tax — applies at 20% to the machine and delivery, with no other charges.
| Part of the bill | Amount |
|---|---|
| Washing machine, before VAT | £480 |
| Delivery, before VAT | £20 |
| Net total — before VAT | £500 |
| VAT at 20% | £100 |
| Gross total — including VAT | £600 |
You can see how the £600 bill was calculated. In this example, net means before VAT and gross means including VAT. HMRC's example VAT invoice similarly separates the charges, delivery, VAT and final total. [3]
This is a simplified illustration, not a complete invoice template. Tax rates and the way amounts must be shown depend on the applicable rules.
Does an invoice mean I still owe the money?
Suppose you agreed to pay this £600 bill within 14 days of delivery and have paid nothing yet. You still have £600 to pay. If you have already paid £200 towards it, the remaining balance is £400.
An unpaid bill is not necessarily overdue: overdue means the payment deadline has passed.
An invoice can also relate to a purchase you have already paid for. The word “invoice” alone does not tell you whether payment has happened. A receipt acknowledges payment; the invoice sets out the charge. [1]
Why should I keep it?
It gives you a record of the seller, the item or work, the date and the price charged. Those details help you check the bill or explain which purchase you are asking about. [2]
Keep it with your payment record and any warranty documents. They answer different questions about the same purchase.
Simple way to remember it
Your invoice explains the bill: who is charging you, what for, and how much. 📄
In practice
When something goes wrong with the purchase
Imagine the washing machine develops a fault. You find the invoice and quote its reference when contacting the seller. This helps identify the machine and the sale you are discussing.
The invoice is useful for that conversation, but it does not automatically decide whether you get a repair, replacement or refund.
In the UK, a seller can ask for proof of purchase. GOV.UK gives a receipt or bank statement among the possible evidence; consumer rights can exist even without a warranty. [4]
In the US, the Federal Trade Commission advises keeping the product receipt with the warranty and checking what the warranty covers and how to claim. A warranty does not necessarily cover every fault or repair. [5]
The invoice helps identify the transaction. Your rights and any warranty terms determine what remedy is available.
Professional view
One purpose, different requirements
Required invoice information and tax treatment depend on the jurisdiction and transaction. The example above illustrates a UK VAT calculation, not a worldwide invoice format or tax rate.
In the UK, GOV.UK lists required information such as invoice identifiers, seller and customer details, descriptions, dates, amounts and applicable VAT. VAT invoices have additional requirements. [2] [3]
In the US, the Internal Revenue Service lists invoices among the documents supporting business purchases and expenses. Its guidance also explains that several records may be needed together to establish all the details, including payment. [6]
International sales can need additional details
In international goods sales, a commercial invoice is also used for customs clearance. Required information varies by destination. [7]
Check that payment and delivery terms agree with the sales contract. Incoterms are trade rules allocating delivery tasks, costs and risks; they do not set the payment method or deadline. These are separate terms to agree. [8]
Check which terms the destination requires on the invoice. The full Terms and Conditions may also be set out in the sales contract. [7] [8]
A pro-forma invoice serves a different purpose
A pro-forma invoice can describe a proposed supply and request payment before it proceeds. For UK VAT purposes, HMRC says a pro-forma used in this way cannot support a claim to reclaim VAT, even if it includes the usual VAT invoice details. [3]
Professional judgement
Check what the amount relates to
Before treating an invoice total as the amount still payable, compare it with the agreed purchase and any payments or adjustments already recorded.
In the washing-machine example, a £600 invoice and a £200 payment leave £400 outstanding. A second request for the full £600 would need checking.
For a business, this means connecting three things: the agreed charge, what was supplied and what has been paid. The invoice is one part of that evidence. [6]
Key takeaways
- An invoice records the goods or services being charged for and the price.
- Its breakdown can include delivery, applicable tax and other charges.
- The invoice total and the amount still unpaid may be different.
- Keep the invoice, payment evidence and any warranty documents together.
- Tax requirements and consumer rights depend on the applicable rules.