Purchase Invoice for Small Businesses

What is a Purchase Invoice?

If you run a small business, you know how important it is to track every penny. Purchase invoices are crucial to organising your finances and ensuring you’re paying the right amount for your supplies. They are a formal record of your purchases, helping you manage expenses, stay compliant with tax regulations, and even resolve supplier disputes. This post will explore the ins and outs of a purchase invoice and why they’re essential for your small business’s success.

When you receive a purchase invoice from your supplier for a business transaction, check the details carefully to ensure no errors. It is much easier to get an invoice corrected before payment is due. Mistakes may include the wrong amount or quantity, no quoted purchase order number, or contact name.

A purchase invoice can be any receipt for goods or services purchased, including rent and utility bills.

Purchase Invoice Meaning

A purchase invoice is simply a bill from a supplier or a payment request. It officially documents your purchase, listing the goods or services provided, the total amount owed, and the payment terms.

Why is a Purchase Invoice Important

Purchase invoices are vital for a few key reasons:

• Proof of Purchase: They serve as a legal record of your transaction, protecting you in case of any disagreements with a supplier.  
• Financial Tracking: Invoices allow you to easily track your spending, essential for managing your budget and cash flow.  
• Tax Purposes: During tax season, purchase invoices are crucial for claiming deductions and accurately reporting your business expenses.  
• Inventory Management: They help you keep tabs on what you’ve ordered, how much it cost, and when it arrived, which can be valuable for inventory planning.  
• Professionalism: Using invoices demonstrates that you’re organised and serious about your business, building trust with your suppliers.

Purchase Invoice vs Sales Invoice

While both purchase invoices and sales invoices document a transaction, they are seen from opposite sides:  

Purchase Invoice: This is the bill you receive from a supplier when you buy goods or services. It’s essentially their record of the sale and your record of the expense.  

Sales Invoice: This is the bill you send to a customer when they buy goods or services from you. It’s your record of the sale and their record of the expense.  

You receive purchase invoices.

You send sales invoices.  

Understanding both is important because:

• Accurate Bookkeeping: You need to track your expenses (purchase invoices) and income (sales invoices) to clearly understand your business’s financial health.
• Matching Transactions: Often, you’ll need to match a purchase invoice to the goods received and your internal purchase order to ensure everything is correct. Similarly, your customers may do the same with your sales invoices.  

By tracking both types of invoices, you can effectively manage your cash flow, stay on top of your taxes, and maintain smooth relationships with suppliers and customers.

Components of a Purchase Invoice

A purchase invoice includes lots of information, including:

• Invoice Number: This unique number helps you identify and track the invoice, making it easy to locate for future reference.
• Invoice Date: This indicates when the invoice was issued, which is essential for record-keeping and tracking payment deadlines.
• Supplier Information: This includes the supplier’s name, address, contact details, and VAT number.
• Buyer Information: Your business name, address, and contact information.
• Purchase Order Number: It should be included if you provide purchase order numbers.
• Product/Service Description: A clear description of what you purchased is essential for understanding the invoice and matching it to the goods or services received.
• Quantity and Unit Price: This section breaks down the units purchased for each item and their prices.
• Total Amount Due: This is the final amount you owe the supplier, including any taxes and discounts.
• Payment Terms: This outlines the accepted payment methods, the due date, and any early payment discounts or late payment penalties.
• VAT (if applicable): If your business is registered for VAT, the invoice will show the amount charged separately.

Understanding these components will help you read and interpret purchase invoices effectively, ensuring accurate record-keeping and smooth financial management for your business.

Tips for Managing Purchase Invoices

Managing purchase invoices efficiently is crucial for maintaining healthy finances and avoiding headaches. Here are some tips to streamline the process:

Get Organised

Choose a system: Decide whether you’ll manage invoices digitally or with a physical filing system. If going digital, scan paper invoices to keep everything in one place.

Establish a filing system: With modern technology, more and more businesses are storing their paperwork on a hard disk or in the cloud. Most accounting software packages allow you to store invoices on the package. Examples of online storage are QuickBooks and Xero. The only problem this may cause in the future is if you change provideers and lose access to the files.

The other option is a paper-based filing system. The best way to make an invoice easier to find is to file supplier invoices alphabetically and by invoice number order. Filing the newest invoices on top will ensure they are the easiest to find.

Some accounts departments have two files for purchase invoices: one for invoices paid and another for outstanding invoices.

It is legally required to keep all your paperwork for at least six years from the year-end date.

Automate Where Possible

Using accounting software automates tasks like data entry and calculations, freeing up your time and reducing errors. Imagine uploading an invoice and having the software automatically extract all the essential details – no more manual input!

With accounting software, all your invoices are stored securely in one central location, making it easy to track, sort, and find what you need in seconds. No more rummaging through filing cabinets! Plus, you can set up automatic payment reminders so you never miss a due date and avoid those pesky late fees.

But it’s not just about organisation and accuracy it provides valuable insights into your spending habits. Generate customised reports to analyse your expenses, identify areas for improvement, and make informed decisions about your budget.

Stay on Top of Payments

Record invoices promptly as soon as they arrive to avoid missing payment deadlines and keep your finances organized.

Review invoices thoroughly: Before making any payments, double-check all the details on the purchase invoice to ensure accuracy and prevent overpaying.

Use payment reminders: Avoid late payment fees by setting up reminders in your calendar or accounting software to notify you when invoices are due.

Match Purchase Order Form To Invoice

Before making a payment, it’s crucial to match your purchase invoice with the original purchase order. This step ensures you’re being billed for the items, quantities, and prices you initially agreed upon. If you find any discrepancies, contact your supplier immediately to resolve the issue before processing the payment.

Build Strong Supplier Relationships:

Communicate clearly: If you have questions or concerns about an invoice, contact your supplier promptly.

Maintain good communication: Building solid relationships with suppliers can lead to better payment terms and smoother transactions.

Regularly Review and Analyse

• Periodically review your invoice records. This will help you identify spending patterns, track expenses, and spot potential issues.
• Analyse your spending: Use invoice data to understand where your money is going and identify areas for cost savings.

By following these tips, purchase invoice management can be transformed from a chore into a streamlined process that supports your business’s financial health.

Payment of Purchase Invoices

Try to pay your supplier invoices on time. If there is a problem with cash flow, suggest a short-term payment plan. They will likely take further action if you continually refuse supplier phone calls. The last resort is claiming the money back through the county courts. If this were to happen, you would need to pay all the costs and interest incurred by your supplier.

If cash flow is tight, you could try a few things to delay payments. The first is only to make payments when they are requested from the supplier.

You could also introduce a cheque run date, such as once a week or once a month. Setting up a system will allow you to control your finances better. Suppliers would then know when they would be paid and not expect a cheque the same day as their phone call.

Try to keep a good relationship with your suppliers. Nothing is worse than phoning up with an order to find your account is on hold. The supplier will only ship goods when payment is made for an outstanding amount, or they will only offer you cash with the order.

Supplier Statements

Your supplier should provide you with a monthly statement of account. Check to see if you have received all the purchase invoices and that the payments you have made are allocated correctly. If there are any discrepancies, contact them to resolve the problem.

Our section on supplier statement section explains how to reconcile them and provides a free Excel template to help. Below is an example of the statement reconciliation.

Credit notes

If you return goods or have agreed on credit with your supplier, it is worth ensuring that the credit note has been issued before you pay the purchase invoice. It is sometimes much easier to sort this out before you pay.

How can I record a purchase invoice in the accounts?

If you operate a computerised accounts system, you can enter the purchase invoice details into the supplier account. Post as much detail as you can: this will help if you need to trace an invoice or find out how much a product costs when you reorder.

If you are running a manual system, keep a list of all your supplier invoices received. Record the following: Invoice Date, Supplier Name, Net Amount, VAT, and Gross Amount. You may also require a short description to help you trace an invoice later.

If you total these up each month, it will inform you of your total monthly purchases.

Return from Purchase Invoice to the Bookkeeping Basics page.