What is an Invoice? Definition and Purpose
An invoice (also called a bill) is an official document that a seller sends to a buyer to request payment for delivered goods or services. It's a payment request and proof of the transaction at the same time.
The purpose of an invoice:
• Payment request: The invoice shows exactly what the customer must pay and when
• Legal proof: The invoice serves as evidence of the transaction
• Administration: Both seller and buyer need the invoice for their accounting
• Tax obligation: The invoice is required for VAT calculation and tax returns
Example:
You sell a product for €100 excluding VAT. You create an invoice for €121 (including 21% VAT). The customer pays €121, you keep €100 and remit the €21 VAT to the tax authorities.
Important: In many countries, including the Netherlands, Belgium, and Germany, you are legally required to issue an invoice for business transactions (B2B). For consumers (B2C), an invoice is often optional but highly recommended.
Legal Requirements: When Must You Issue an Invoice?
Whether you must issue an invoice depends on the type of transaction and your customer:
Always required:
• B2B (Business to Business): Sales to other businesses – invoice is legally required
• Services above €250: In many EU countries, invoice required for services above this amount
• Cross-border EU sales: For intra-community supplies (0% VAT)
• Export outside EU: Customs documentation requires an invoice
Recommended but not always required:
• B2C (Business to Consumer): Sales to consumers – invoice often optional but professional
• Small amounts: Below €100 for simple goods – receipt may suffice
Timing: You must issue the invoice within 15 days after delivery of goods or completion of services (EU directive). Many countries have stricter requirements (e.g., immediately or within 5 days).
Good practice: Always issue an invoice, regardless of legal obligation. This protects you in disputes, makes your accounting easier, and looks professional.
Mandatory Fields on an Invoice
A legally valid invoice must contain certain mandatory information. Missing these can result in the invoice being rejected, VAT deduction being denied, or fines during tax audits.
1. Your Business Information (Seller)
• Company name (as registered in business register)
• Full business address
• Chamber of Commerce number (or equivalent)
• VAT number (if VAT liable)
• Bank account number (IBAN)
2. Customer Information (Buyer)
• Customer name (company or individual)
• Customer address
• VAT number (for B2B within EU)
3. Invoice Details
• Unique, sequential invoice number (e.g., 2025-001, 2025-002)
• Invoice date (issue date)
• Due date or payment term (e.g., "within 14 days")
4. Transaction Details
• Clear description of goods or services
• Quantity and unit price per item
• Subtotal (amount excluding VAT)
• VAT rate(s) and amount(s)
• Total amount (including VAT)
5. Payment Information
• Payment method (bank transfer, credit card, etc.)
• Payment reference (invoice number or customer reference)
Example minimal invoice:Invoice #2025-001
Date: January 15, 2025
Due: January 29, 2025
From: ABC Company, Amsterdam
VAT: NL123456789B01
To: XYZ Business, Rotterdam
1x Consulting Service €500.00
VAT 21% €105.00
Total €605.00
Types of Invoices
There are several types of invoices, each with a specific purpose:
1. Standard Invoice (Sales Invoice)
The most common type – issued after delivery of goods or completion of services. Contains all mandatory fields and requests payment.
2. Proforma Invoice
A preliminary invoice issued before delivery, often used for:
• Customs clearance (international shipments)
• Advance payment requests
• Quotations
Important: A proforma invoice is NOT a payment request and has no legal value for accounting!
3. Credit Note (Credit Invoice)
Issued when you need to reverse or correct a previous invoice:
• Product returned
• Service not delivered
• Error in original invoice
• Discount granted after the fact
The credit note reduces the customer's debt and your revenue.
4. Recurring Invoice (Subscription Invoice)
For ongoing services with regular payments:
• Monthly software subscriptions
• Annual maintenance contracts
• Rental agreements
Often automated to send monthly or annually.
5. Down Payment Invoice
Request for payment before delivery:
• 50% deposit before project starts
• Advance payment for large orders
Final invoice subtracts the down payment from total amount.
6. Self-Billing Invoice
The buyer creates the invoice on behalf of the seller (with seller's agreement). Common in logistics and retail sectors where the buyer manages invoicing centrally.
How to Create a Professional Invoice
Creating invoices manually in Word or Excel is time-consuming and error-prone. Here are the best methods:
Method 1: Invoice Software (Recommended)
Use professional invoicing software like Winkel Factuur that:
• Automatically generates legally compliant invoices
• Manages sequential invoice numbers
• Calculates VAT correctly (including OSS for EU sales)
• Exports to accounting software
• Sends invoices automatically to customers
Method 2: Accounting Software
Full accounting packages like Exact Online, AFAS, or Xero often include invoicing:
• Integrated with bookkeeping
• Bank reconciliation
• Financial reports
• Usually more expensive and complex than dedicated invoicing tools
Method 3: Templates (Not Recommended for Regular Use)
Word or Excel templates can work for occasional invoices but have risks:
• No automatic invoice numbering = risk of duplicates or gaps
• Manual VAT calculation = risk of errors
• No central storage = difficult to find old invoices
• Time-consuming for high volumes
Best Practice: For webshops and e-commerce (Shopify, WooCommerce, bol.com, Amazon), use automated invoicing like Winkel Factuur that:
• Receives orders via webhooks
• Generates invoice automatically
• Emails invoice to customer
• Uploads to marketplace (e.g., bol.com)
• Archives for compliance
Invoice Storage: Legal Requirements
You must keep invoices for a legally required period – both invoices you send (outgoing) and receive (incoming). This is your legal obligation as a business owner.
Storage Period (Legal Requirement)
• Netherlands, Belgium, Germany: 7 years
• France: 6 years
• UK: 6 years
• Calculated from the end of the financial year
Digital vs. Paper Storage
• Digital invoices (PDF, UBL) must be stored digitally – printing is not required
• Paper invoices can be scanned and stored digitally (original may be destroyed in most countries)
• Electronic invoices (UBL, e-invoicing) must retain original format
Requirements for Digital Storage:
• Invoices must be readable (not corrupted)
• Must be searchable (by invoice number, date, customer)
• Protected against unauthorized changes (audit trail)
• Backups required to prevent data loss
Penalties: Failure to provide invoices during tax audits can result in:
• Fines (up to €25,000 per violation)
• Estimated tax assessments (often unfavorable)
• Loss of VAT deduction rights
Your Responsibility: You are responsible for storing your own invoices according to legal requirements. Winkel Factuur generates and delivers invoices to your customers, but archiving them long-term is your responsibility as the business owner. We recommend using cloud storage (Google Drive, Dropbox) or dedicated accounting software for secure backup and organization.
Common Invoice Mistakes to Avoid
1. Missing or incorrect VAT number
Consequence: Customer cannot reclaim VAT, invoice may be rejected.
Solution: Validate VAT numbers via VIES system before invoicing.
2. Non-sequential invoice numbers
Consequence: Tax authorities may suspect fraud or hidden income.
Solution: Use software that enforces sequential numbering automatically.
3. Incorrect VAT rate
Consequence: You pay wrong VAT to tax authorities, potential fines.
Solution: Know which rate applies (21%, 9%, 0%) per product/service.
4. Missing invoice date or due date
Consequence: Unclear when payment is due, delays in collection.
Solution: Always include both dates, set standard payment terms (e.g., 14 days).
5. Vague product/service descriptions
Consequence: Tax authorities may reject as proof, customer disputes.
Solution: Be specific: "Web design services January 2025" instead of just "Services".
6. Not keeping copies
Consequence: Cannot prove transaction during audit, lose VAT deduction.
Solution: Automatic archiving with cloud backup.
7. Wrong currency for international invoices
Consequence: Confusion about actual amount due, exchange rate disputes.
Solution: Clearly state currency (EUR, USD, GBP) and optionally include exchange rate.
Frequently Asked Questions About Invoices
Can I still send an invoice if payment already happened?
Yes, absolutely! The invoice is proof of the transaction and required for administration. Send it even if paid in cash or advance.
What if I made a mistake on an invoice?
Don't simply edit the old invoice! Instead: issue a credit note to cancel the incorrect invoice, then issue a new correct invoice.
Can I send invoices by email?
Yes, email is perfectly legal. PDF invoices by email have the same legal validity as paper invoices (since EU directive 2010).
What is an invoice number format?
You can choose your own format, as long as it's unique and sequential. Examples: 2025-001, INV-20250115-001, 1, 2, 3...
Do I need to issue invoices for small amounts?
Legally, it depends on your country and customer type. Professionally, it's always recommended for clear administration.
Can customers request invoices months later?
Yes, customers can request invoices for past transactions. Keep good records so you can recreate or find them!