Invoicing is the process of billing your customers for the items and services that they will owe you. It is also how you record your income. This is the opposite of Accounts Payable, where that is money you owe to others. Accounts Receivable is money others owe to you. Just remember the word Receivable means money you get and that’s how you can keep it straight in your head. Accounts Receivable does work similarly to Accounts Payable. It tracks how much money and from whom, is owed to you. Once a customer pays you, that amount is removed from Accounts Receivable reports, so you will always see only what is still owed to you.

This is another process that is not the same in every bookkeeping software so it is impossible for me to give you specific instructions. You will need to set up every customer with as much detail as you know. Your bookkeeping software will have many areas within the Customer section you can add information to. It is important to have their mailing address, phone number, sales tax status, email address, etc.

You may also need to set up Income Items before you start any invoicing. Here is where it is a bit confusing. For example, you want to set up an Income Item for painting. The type will be a Service type, this is the kind of work you do, but the account you need to use would be something like Construction Income. This is because when you invoice for Painting and list that on your invoice, you will know it is for Painting work. But on your financial statement you will want to know what type of Income was earned and it would show up as Construction Income. Depending on whether you are cash or accrual based, it will show up there when the invoice is created or when it is paid. So for all the different types of work that you do, you will assign each one to an Income Item. You do not need a lot of Income Items, just as many as you want to track separately. Don’t set up Income Items for every little thing that you do or your financial statements will be too detailed and hard to understand.

Go into your invoice section and create an invoice. The screen will be self-explanatory. Customer name, the date and lines to put your billable items on. The bookkeeping software will start numbering each invoice with a different number but you can override the first one if you like with 5000 and it will go on from there to 5001, 5002, etcetera as you create invoices. Describe each thing you are billing for, choose an item, and put the amount on the right hand side. The bookkeeping software will total it for you. When it is complete and you are satisfied you have included everything, save it and print it. Some software will allow you to email it directly to the customer and if that works correctly, you may opt to do that. Some software cannot do it easily and it’s better to just print it and scan it into a pdf file and email it from your email program. I always opt to do what is easiest rather than wrestle with my software when it won’t cooperate. Just do what works for you. If you wish, you can snail mail the invoice. Make sure you have a printed copy of each invoice for your own records. I match those up with the customer’s payment when it comes in. Send invoices out promptly so that you will know how long the customer has had it, if they haven’t paid you. If you pull up an Accounts Receivable report you will see everything you have invoiced that has not yet been paid.

When you receive your customers’ payment you will go to Receive Payments in your software and enter the deposit. Make sure to choose the bank account you are going to put the money into and the date you are going to do it. Choose the customer and a list of invoices they owe you will populate. You add their check number and payment method and the amount. If they pay exactly what they owe on an invoice, there is usually a box you can check and it will add the amount there for you. If they pay less than the full amount, you will need to type in what they are paying. Your customers check may indicate which invoice they are paying and you should make sure to choose the same one to avoid confusion. If you notice your customer has older invoices that are unpaid, you can give them a call about it. Save your transaction and if you pull a new Accounts Receivable report up, you will notice that the invoice they just paid is no longer on the report. I staple a copy of their check to a copy of the invoice and a copy of the deposit slip and file it in a quarterly file. Remember you need to have proof of all income you receive and from whom, in case you are ever audited. Now you know why invoice numbers are important and why they must all be different. So that you and the customer can pay and apply payments accurately.