Core invoice terms
These are the document types you will meet most often. They look similar and are easy to confuse, but each one plays a distinct role at a different point in a sale: quoting, demanding payment, correcting a mistake, or proving that money changed hands.
- Invoice
- A dated commercial document that records a sale and formally requests payment from the buyer. It lists what was supplied, the amounts due, any tax, and the payment terms.
- Invoice number
- A unique reference assigned to each invoice, used to identify and track it. In most jurisdictions invoice numbers must follow a sequence with no gaps.
- Proforma invoice
- A preliminary invoice or quote sent before a sale is finalised. It is not a demand for payment and is not used to reclaim tax; it confirms price and terms in advance.
- Commercial invoice
- The binding sales invoice that accompanies a cross-border shipment of goods and is used by customs to assess duties and import taxes. It carries customs fields like HS codes and country of origin.
- Credit note
- A document that reduces or cancels a previously issued invoice, for example after a return, an overcharge, or a discount. It carries a negative amount and references the original invoice.
- Receipt
- Proof that a payment has been made. Unlike an invoice, which requests payment, a receipt confirms it was received and settles the transaction.
Tax terms
Consumption taxes appear on most invoices, but the names and mechanics differ by country. The terms below cover the European VAT system, the GST used in many other countries, US-style sales tax, and the special rules that decide who actually accounts for the tax.
- VAT (value-added tax)
- A consumption tax charged at each stage of the supply chain on the value added, used across the EU and many other countries. The end consumer ultimately bears it; registered businesses collect and reclaim it.
- GST (goods and services tax)
- A value-added consumption tax used in countries such as Australia, Canada, India and New Zealand. It works much like VAT, taxing the value added at each stage.
- Sales tax
- A tax applied once, at the point of final retail sale to the consumer, common in the United States. Unlike VAT, it is not charged on business-to-business transactions in the supply chain.
- Reverse charge
- A rule that shifts the duty to account for VAT from the seller to the buyer, common on cross-border B2B supplies in the EU. The invoice shows no VAT and is labelled accordingly.
- VAT registration number
- The identifier a tax-registered business uses on its invoices, often prefixed with a country code in the EU. It lets buyers verify the supplier and, for B2B sales, apply reverse charge.
- Tax point
- The date that decides which tax period and rate apply to a supply, also called the time of supply. It can differ from the invoice date or the payment date.
International trade terms
When goods cross a border, the invoice carries extra data that customs authorities use to clear the shipment and set duties. These terms describe who bears which costs, how a product is classified, and where it came from.
- Incoterms
- Standardised trade terms published by the International Chamber of Commerce (such as EXW, FOB, DAP and DDP) that define who pays freight, insurance and duties, and where risk passes from seller to buyer.
- HS code
- A Harmonized System code: an international six-digit (often extended) tariff classification for a product. Customs uses it to set the duty rate and apply trade rules.
- EORI number
- An Economic Operators Registration and Identification number that businesses need to import or export goods within the EU. It identifies the trader to customs across member states.
- Country of origin
- Where a product was manufactured or substantially produced, not where it was shipped from. It drives duty rates and eligibility for trade-agreement preferences.
- Customs value
- The value of goods on which import duty is calculated, usually based on the transaction price plus or minus certain costs depending on the Incoterm. It must be declared truthfully.
Payment terms
Payment terms set out when and how an invoice should be paid, and what happens if it is not. Getting them clear on the invoice reduces disputes and helps you get paid on time.
- Net 30
- A payment term meaning the full invoice amount is due 30 days from the invoice date. Other common variants are net 7, net 14 and net 60.
- Due date
- The calendar date by which payment must reach the seller. It is derived from the invoice date and the agreed payment term.
- Late payment interest
- Interest a seller may charge on an overdue invoice, often at a statutory rate. In the EU, business creditors have a legal right to charge it on late commercial debts.
- Remittance
- The act of sending payment for an invoice, and the details that accompany it. A remittance advice tells the seller which invoices a payment covers.
- Partial payment
- A payment that settles only part of an invoice, leaving a remaining balance due. The invoice stays open until the outstanding amount is paid in full.
Compliance and format terms
Tax authorities increasingly care not just about what an invoice says but how it is structured and stored. These terms cover the rules on numbering, machine-readable formats, how long you must keep records, and the snapshot of the parties an invoice must preserve.
- Sequential numbering
- The requirement that invoices follow a continuous, gap-free number sequence. It lets tax authorities confirm no invoices were deleted or hidden.
- E-invoicing (structured XML)
- Issuing invoices in a machine-readable structured format such as XML or UBL, rather than a PDF or paper. Many countries now mandate it for B2B or B2G transactions.
- Retention period
- The minimum length of time you must keep invoices and related records for tax purposes, commonly six to ten years depending on the country.
- Buyer/seller snapshot
- The record of the buyer and seller details exactly as they were when the invoice was issued. Because issued invoices are immutable, later changes to a customer profile must not alter past invoices.
Invoicing terms questions
What is the difference between an invoice and a receipt?
An invoice requests payment, while a receipt confirms payment was made. The seller issues an invoice when goods or services are supplied to ask the buyer to pay, and issues a receipt afterwards as proof that the money was received. One opens the transaction; the other closes it.
What does net 30 mean on an invoice?
Net 30 means the full invoice amount is due 30 days from the invoice date. The word net refers to the total payable, and the number is the credit period in days. Common alternatives include net 7, net 14 and net 60, and the due date is simply the invoice date plus that number of days.
What is a credit note?
A credit note is a document that reduces or cancels a previously issued invoice, for example after a return, an overcharge, or a post-sale discount. It carries a negative amount and references the original invoice so the adjustment is traceable. Because issued invoices should not be edited, a credit note is the correct way to correct one.
What is the reverse charge on an invoice?
The reverse charge is a VAT rule that shifts the duty to account for the tax from the seller to the buyer, used mainly on cross-border business-to-business supplies in the EU. The seller issues the invoice with no VAT added and a note stating that the reverse charge applies, and the buyer then accounts for the VAT in its own country.
Why must invoice numbers be sequential?
Invoice numbers must usually be sequential and gap-free so that tax authorities can verify no invoices were removed, hidden or duplicated. A continuous sequence makes the set of invoices auditable and is a legal requirement in many jurisdictions, which is why invoicing software assigns numbers automatically rather than letting you skip them.
What is e-invoicing?
E-invoicing means issuing invoices in a structured, machine-readable format such as XML or UBL that systems can process automatically, rather than a PDF or paper document a human reads. A growing number of countries now mandate structured e-invoicing for business-to-business or business-to-government transactions, often through a government platform.