How to Assign Invoice Numbers
Assigning invoice numbers may seem like a straightforward process. However, things can get complicated, especially when you’re handling multiple clients. Should you create a unique invoice numbering system for every customer?
Well, things do not have to be so difficult. In this article, we’ll share some tips on how to assign invoice numbers. Whether you own a small, medium, or large business, you can simplify the process of tracking all your invoices.
What Is an Invoice Number?
Every invoice has a unique, sequential number assigned to it for easier tracking. When you assign invoice numbers properly, finding particular invoices becomes easier. Moreover, you can conveniently monitor which payments are due and efficiently keep records of income for tax filing. What’s important is that each invoice ID or number is always clearly visible and unique.
Some local invoicing laws may require an invoice number, but it still depends on regional guidelines. However, whether you run a small startup business or a large company, the best practice is still establishing an invoice numbering system. Doing so will help you avoid legal headaches and confusion along the way.
What Is the Purpose of an Invoice Number?
You can rarely find examples of invoices that contain no invoice numbers. After all, having an invoice ID brings business owners and bookkeepers a number of benefits. When you properly assign an invoice number, you can
- conveniently keep records of income for accounting and tax filing;
- prevent making duplicate payments;
- quickly find invoices related to particular transactions, regardless of the date, job type, or location;
- keep track of outstanding payments; and
- exhibit professionalism when providing services.
Let’s say one of your clients asks about an invoice that has been settled several months back. Without an invoice number, it will take a while before you find the invoice you need. What would you do if you needed to close multiple transactions for the same client? Having a consistent invoice numbering system allows you to find and manage your invoices more conveniently. This way, you won’t waste your client’s time and you’ll spare yourself the confusion.
What’s the Ideal Method for Assigning Invoice Numbers?
In the UK, tax law requires invoice numbers to be sequential. However, in the US, there are no overriding legal regulations on what an invoice should contain. In any case, you can follow the methods of assigning invoice numbers listed below:
- Sequential (ex: 1, 2, 3, and so on)
- Chronological, by date (ex: 20200909-001, 20200909-002, and so on)
- By assigned client number (ex: 31-0001, 31-0002, and so on)
- By assigned project number (ex: 165-001, 165-002, and so on)
- By date + assigned client number (ex: 20200909-31-001, 20200909-31-002, and so on)
If you’re following legal guidelines on invoice numbering, you shouldn’t include gaps or repeats in the sequence. In general, it is advisable to be specific when assigning an invoice ID. Adding the month and the year of issuance would make the invoice easier to track. In one of the examples above, we used the date (20200909), followed by the number of the invoice (01, 02, and so on).
Meanwhile, if you don’t issue several invoices a day, you can simply include the year and month in the invoice number. The same goes when you occasionally generate invoices in a year. For example, you can number your invoices 2020-001, 2020-002, and so on. Using this system will allow you to quickly see which year and month you issued the invoice. At the same time, you’ll still be able to follow sequential numbering.
Can You Use Alphanumeric Invoice IDs?
Invoice IDs do not have to strictly contain numbers only. You can also assign unique codes that include letters. You can even use special characters like dashes (-) and slashes (/). Adding characters and letters to your invoice number series will simplify the identification and organization of records. Even so, you should still follow the same rules that apply to regular invoice numbers when you’re using an alphanumeric system. Of course, IDs should be assigned sequentially and the sequence should not contain gaps.
You can use letters to identify various types of documents. For instance, if you issue several quotations in a year, you can assign the abbreviation ‘QUOT’ to your invoice numbers. Now, for actual invoices, you can include ‘INV’ in the number. However, these letters should be consistent and only the numbers should increase. Here are some examples of alphanumeric invoice IDs:
Can You Issue Invoices without IDs?
To be clear, invoices are not legally required in the US. So, it is at the business owner’s discretion whether they’re going to issue invoices. Let’s say you’re dealing with local clients and you already have a foolproof method of monitoring your transactions. In this case, you don’t need a properly numbered invoice. However, it is common for other countries, especially those in the EU, to impose invoice regulations. So, if you’re operating overseas, you should check the local laws. This way, you can stay compliant and avoid legal issues down the road.
When Should You Update Your Invoice Numbers?
Date-based invoice number series must be updated every year or month. Let’s say you have the invoice ID ‘202007-INV-007’, which includes the year and the month. This ID also indicates that this is the seventh invoice for July. So, the following month, August 2020, your invoice number should read as ‘202008-INV-001’.
Now, if you decide to use an entirely different invoice number series, do so once the next accounting period comes. Otherwise, there will be risks of duplicating or missing invoice numbers. Of course, this can lead to a lot of confusion once you start tracking your transactions. Also, if you’re changing the series, make sure that you do not leave out or repeat the numbers. So, if your last invoice number was ‘031’, the new one should be ‘032’ to maintain consistency.
What to Do If You Make Mistakes with Your Invoice Numbers
It could be a problem if you incorrectly numbered your invoices. Most of the time, this will result in duplicate payments. So, it is important to correct the mistake as soon as you spot it. Doing so will help you avoid confusion in the documentation and potentially expensive consequences.
Now, if you commit spelling errors or typos in the business name or any trivial detail, you’re not compelled to correct the mistakes. Generally, in accounting, once invoices have been finalized, you should never delete them. In this case, correcting the mistake is the best course of action. You can generate a new invoice with the correct details. Then, you can send that to your client along with the note of correction. This way, there is evidence of the modification in your books and your customer’s books.
Meanwhile, if your client has already settled the invoice, you should make adjustments to a future invoice accordingly. On the other hand, you can always return the duplicate payment or issue another invoice, depending on the situation.
Dealing with Deleted Invoices
As we’ve mentioned, it is a standard rule that you should never delete invoices. Missing invoices will show up as gaps in your financial records, especially since invoices are numbered sequentially. So, if you want to get rid of a transaction, it is best that you issue a credit note for the same amount. Doing so will ensure consistency in your number sequence. At the same time, you’re also effectively canceling a transaction.
The Easier Way to Create Invoices
As you can see, some of the methods for assigning invoice numbers can be tedious and time-consuming. What’s more, manually generating invoices can be prone to error. This can cause headaches, especially when you’re managing numerous remote employees. Thankfully, there is an easier way to create invoices along with their IDs. You can let your remote workers use a time tracker like Traqq.
What’s great about this tool is it is designed as a user-friendly time tracking application. So, when your remote team uses it, they won’t have to create their timesheets manually. All they need to do is start and stop the timer every day. At the end of the month, they can click a button on Traqq and the tool will automatically generate their invoice. With detailed invoice numbering, you won’t have trouble tracking your transactions.