As a freelancer or a small business owner, you’re obliged to take care of each aspect of your business on your own. Not having a dedicated team to take care of bureaucratic tasks and administration means that it’s easier for mistakes to creep in. This can result in fees and penalties piling up, as well as late invoices that delay the payments.
It’s not the end of the world, though — at least when it comes to creating an invoice. Provided that you have worked out a reliable system and know what to include on each invoice, it won’t be too hard for you as an independent contractor.
In this article, we will explain to you everything there is about composing a professional invoice! Covering everything from dos and dont’s, pro tips, and necessary elements, by the end of the reading you’ll know how to charge for contractor work on the autopilot.
How to invoice as a contractor?
This chapter contains broad advice on creating contractor invoices, and how it applies to different aspects of being self-employed (professionalism, taxes, time management, etc). If you wish to get to the more concrete information, you can find it below this part.
Three things are highly important for self-employed and independent contractors managing their own invoices:
- Time tracking
- Good organization
While this may apply to all working people in general, it’s especially important for independent contractor invoices.
Time tracking is obviously a priority if you charge the clients by the hour.
However, knowing the exact number of hours different tasks take from your working days is also important if you charge by the word, by product/ service/unit, or in a different way. Not only this is an essential part of effective time management — it will help you be more precise when calculating the income for certain time periods.
On the invoice form you send to the clients, the price per service/ item is the most important part. Including the time it took you to complete them adds a more professional touch, and explains the cost of your work better (especially for seemingly simple tasks that actually take hours).
As there are more than a few elements needed to create a valid invoice, good organization is a must. Develop a logical system that encompasses every part of the work, and you’ll never have an issue related to invoicing! Add consistency to this equation, and you’ll have all the bases covered.
Tax filing is a major reason to cover all of these points above. Independent contractors are required to pay their taxes on their own, as clients don’t withhold anything for tax purposes.
To fill the self-employment tax properly and have your social security, healthcare, and income taxes in check, you need to monitor your income, business expenses, and tax deductions at all times.
Clients, on the other hand, need to file IRS Form 1099-NEC (formerly known as IRS Form 1099-MISC) for non-employee compensation that exceeds $600 within a year. Having orderly, complete invoice documentation is the best safeguard to keep tax penalties at bay.
Our Independent Contractor Guide contains all the information about taxes for independent contractors!
What to include in the invoice?
To avoid any errors, legal troubles, and misunderstandings with your clients, as well as to maintain a good professional image, put the following items in your invoice:
- Document name — it sounds obvious, but make sure to correctly label the invoice document as such, ideally in the heather, with bold letters
- Your/ company logo — to add a touch of personalization and trustworthiness
- Invoice number/ code — assign dedicated numbers to each invoice to make record keeping easier; simple multi-digit numbers will do, but you can also create a special code system that contains invoice date and client name. This system is more elaborate, but it can help you find the exact invoice you need quickly if there’s a lot of them
- Invoice date — include the sending date to prevent payment date (and other) miscalculations
- Your business details — logo, business name, your name, and contact information (email, phone number, and maybe address)
- Client’s contact information — the same information as in the previous step, but include billing contact or billing department of larger enterprises
- List of services — here, you’ll need to list each service you provided individually, along with a brief description of your work, amount of hours spent working (or word numbers, for writers), hourly rate (or price per word), and subtotal for each service
- Total amount due — total cost for services listed above; you can also add applicable tax and flat rate if needed
- Payment terms — state the payment method you accept (PayPal, Payoneer, Skrill, bank account, or something else)
- Payment due date — include a specific payment deadline to avoid confusion that may occur if you write something vague, such as “15 days from the invoice reception date”
- Late payments policy — if you have such a policy, write down the details and what happens in case of late fees
You can customize the invoice document as you wish, as long as it contains the key elements.