Something as simple as an invoice number plays a bigger role in your freelance business than you might think.
Obviously, invoices are important. Without them, you don’t get paid. What is less obvious is that the formatting of your invoice says as much about you and your business as the number in the “total” box.
Let’s talk about why you need an invoice number, some options for setting up your invoicing structure and how all of this minute detail affects your bottom line.
What is an invoice number?
An invoice number is a series of digits found on invoices generated by a specific company. Invoice numbers are unique to the business that issues the invoice and are used primarily to track payments and communicate between the issuing company and the paying entity. An invoice number can be used to reference past due invoices, invoices coming due soon, or invoices that have already been paid. The number can be anything, as long as it is easy to read, understand and track.
Every invoice includes a lot of the same elements. The date, your information, your client’s information, the services you are billing for, legal disclaimers and of course, the invoice number. Essentially, your invoice gives a client all of the information they need in order to pay you.
You may have seen example invoices with a “PO number” listed somewhere. Don’t get confused––an invoice number is not the same as a PO number. PO stands for “purchase order,” and it is also used in tracking invoices. The main difference is that a PO number comes from the client. An invoice number is generated by you, the contractor.
Purchase orders are used in authorizing payments, and some clients may require you to use them. Regardless of whether or not your invoice has a working PO number, you need to include a separate invoice number on every single bill you send out.
Why an invoice number is important
Most freelancers are managing a single business entity, and many are only managing a single employee: themselves. So in the beginning, it may seem a bit extreme to include a number on every invoice. What is the point?
Think about this: your clients are likely to be managing dozens if not hundreds or thousands of bids, contracts and invoices from contractors and suppliers, depending on the size of the company.
They need to be able to tie your invoice directly to the budget dollars they send your way. That’s what the invoice number is for. The unique identifying number helps clients track everything in their system.
Some companies won’t even accept an invoice that isn’t numbered, because their accounting software can’t track the payment.
An invoice number is also useful to you as a contractor. If you are just starting out, it may seem simple enough. You send an invoice out, money comes back to you.
As you grow into your business, you will soon find that having that number to reference is invaluable as you track revenue and expenses, collect payment and file taxes.
It can also serve as legal protection in the event that you have to handle an invoice dispute. The more detail that you have logged and tied to that particular statement, the easier it will be to defend yourself and your services.
How to number your invoices
This all sounds great, but where do you start? How do you number invoices in a way that is efficient and professional?
What number to begin with
Your starting invoice number is ultimately up to you, but there are a few schools of thought. If you are a brand new freelancer, you may want to pick a higher number in order to look like a more established business. You could choose numbers representing the date you became a freelancer, your birthday, or your middle school student number.
Some experts discourage this because you’ll be missing a whole section of numbers that might mess with your record-keeping in the long run. As long as you keep track of everything and stay sequential from the beginning number, I don’t see this as being an issue.
Personally, as a new freelancer many years ago, I just started at 1. I used my initials and then 000001. My first client already knew I was new to the contracting game, and it seemed easier to begin at––well, the beginning. I have billed many, many invoices since then, and it’s fun to watch the number grow and think back on how far I have come.
Be sure to give yourself room to grow (don’t lock yourself into a 2-digit numbering system, for example). And be sure to track your invoices by number in a central document, so you can refer back to those as-needed.
Where to put the invoice number
There is no legal requirement for the placement of your invoice number, but there are two logical requirements.
1–Ensure that the invoice number is easy to find. Most invoices have the number at the top, in the right or left hand corner. You don’t want your clients to have to go looking for the invoice number.
2–The invoice number should be labeled consistently across all invoices, for all clients. This not only makes it easier to find manually, but it’s also easy for digital programs to recognize.
4 Different ways to decide an invoice number
1. By date
One simple way to number invoices is based on the date that the project begins. The date may be the entirety of the invoice number, or it could be part of a larger invoice number with other identifying digits either before or after.
Numbering by date is convenient because it’s easy to remember, every project has a start date, and you don’t have to waste time looking up where you’re at in your invoicing sequence. However, because projects are often scattered (one starts before the other finishes), numbering by date means that projects won’t always line up perfectly in your books.
2. By project
Some contractors choose to use a specific project number and then number intermittent invoices within the project.
If your work largely follows this format, numbering this way can make a lot of sense. It’s useful to group invoices according to the project they are billed to, especially if you’re tracking an overall project budget and need to monitor how much you have already billed.
The only downside is that this system is a bit complex, and you’ll have to take care to double-check the invoice number every time you send one out to ensure that you aren’t grouping payments with the incorrect project number.
3. By client
If you work with many different clients and want to be able to see at a glance how much each of them is contributing to your overall business, you might assign each of them a unique client number, followed by an invoice number.
This solves a lot of problems in tracking billing. It also makes it easy to know which number to start with––your client will know that this is the first invoice specifically for them, so you can just start at the number 1.
4. By sequence
This is the simplest system of all and works well for many freelancers. Simply choose a number and go in order from there.
While this system is easy to use and saves a lot of agonizing over the exact format of your invoice number, it doesn’t provide a lot of data. This means that tracking revenue and stats on how your freelancing business is performing has to be done in other ways.
Ultimately, the way you decide to utilize the invoice number may come down to the type of clients you work with and the invoicing software you use. Some applications auto-generate the invoice number for you, others ask for your input. Some will require a client or project number, and in other tools, you have more input in the formatting.
How you label invoices matters because you need a smart way to track your billing and an easy way for clients to track their spending. That said, don’t overthink it. As long as the invoice number has reasoning behind it and is easy to find, it will get the job done.
Unless you regularly process invoices for contractors at your day job, it’s likely you never thought about invoice numbers before becoming a freelancer.
Believe it or not, the small amount of real estate the invoice number takes up on your bills is extremely important. It’s a valuable tool that ensures both you and your clients are talking about the same billing sheet.
You need to make sure that you use an accurate invoice number for every statement you send out both for record-keeping and for legal reasons.
While you don’t need to stress yourself out over the exact placement and numbering scheme of your invoices, you do need to spend the time upfront to create a thoughtful system that will work for you and your clients. An organized bookkeeping structure can mean the difference between success and failure for small business owners and freelancers alike.
While it may seem tedious, invoices are one of the most important parts of freelancing. Paying attention to the details that matter to your clients (like an invoice number) makes you look good and helps you get paid on time.
And really, isn’t that what it’s all about?
Keep the conversation going...
Over 10,000 of us are having daily conversations over in our free Facebook group and we'd love to see you there. Join us!