Creating invoices made easy - this is how you quickly create an invoice

1. What mandatory information should be included on an invoice?
2. Difference in invoice creation: private individuals, small business owners and abroad
3. How do I create an invoice? The 5-step guide to invoice creation
4. Recommended invoice programs and accounting software for creating invoices
5. What happens after the invoice is created - cancellation, shipping, reminder, collection, arrears
6. Do invoices need to be archived or not?
7. Receipt, Credit, Advance Invoice - The Most Important Terms Briefly Explained

If you leave the world of regular employment and become self-employed as a freelancer or small business owner, you will need to learn a lot of new skills and tasks. This includes writing invoices for services rendered. Without them, it doesn't work in Germany. They are needed on the one hand monthly or quarterly for your accounting and on the other hand annually for your tax return. If in between the health insurance company wants proof from you, the tax office subjects you to an audit or you apply for the artist's social insurance, your invoices will also be requested.

What you should definitely avoid are faulty invoices. We are not only talking about small typing errors or shifted design elements, but serious errors such as the wrong VAT identification or the use of incorrect bank details. These can lead to penalties and costly additional payments which you definitely cannot afford, especially at the beginning of self-employment.

To ensure that you are on the safe side when it comes to "invoice creation", this article provides you with the most important information about dos and don'ts, brief explanations of relevant terms and a brief overview of invoice creation tools.

What mandatory information should be included on an invoice?

The Sales Tax Act, specifically § 14 UStG, stipulates that an invoice is an official document. It must therefore contain a number of mandatory details in order to be valid. Otherwise, there could be tax problems for you or your customers. This would be annoying, especially since the mandatory information is not particularly complex.

In detail, these are the mandatory details for a GoB invoice:

• Complete name and address (and possibly company name) of the receiving party
• Company, name and address of you/the person writing the invoice (e.g. at the top or bottom)
• Date of issue of the invoice and continuous invoice number
• Information regarding the type of service/goods and scope
• Tax rate and net amount
• Sales tax amount and gross amount
• Time or timeframe of delivery/service
• Tax number or VAT identification number of you/the person making the invoice
• Possibly a reason for the exemption from VAT (small business regulation)

Difference in invoice creation: private individuals, small business owners and abroad

When you create an invoice, it makes a huge difference whether you do it as a private individual or as a small business owner. You will find out what to consider now.

Creating an invoice as a private person

As a private individual, you can create an invoice, for example, when you sell a service or a product once. How your customers pay and whether they are also companies or private individuals is irrelevant in such a case. As a private person, by the way, you can also send a reminder if the payment target noted on the invoice is not met.

What you as a private individual are not allowed to do under any circumstances is to show taxes on an invoice. Even if your invoice goes to a company. Because anyone who includes taxes also has to pay them back to the tax office.

The amount of a private invoice is unlimited. However, a profit of over 730€ must be declared for tax purposes and possibly taxed.

As a private seller, you do not have to grant a right of return. To also be legally protected here, it is best to include a note on the invoice such as: "Since this is a private sale, all warranty claims are excluded.".

Creating an invoice as a small business owner

As soon as you write invoices multiple times in a row or regularly, this is regarded as a business that must be registered and you are consequently considered an entrepreneur. If in doubt, you should consult with your tax office or a tax advisor.

As a small business owner, by the way, you do not have to show VAT/sales tax on your invoices. However, you must state the reason for the non-display. You can, but don't have to, use the term "small business regulation". However, it is always advisable to refer to the relevant legal paragraph (§19 UStG).

You can express this in the following ways:

• "According to § 19 UStG (small business regulation), the calculation of the VAT is omitted."
• "In accordance with § 19 UStG, no VAT is shown."
• "No VAT is shown due to the application of the small business regulation according to § 19 UStG."

We have written an extra article on invoice programs for small businesses. Take a look if you are interested.

Issuing invoices abroad

Especially in our digitized and globalized society, it can quickly happen that you receive orders from abroad. If you are subject to the small business regulation, nothing changes here either. You remain exempt from tax identification.

If you are, on the other hand, a regular entrepreneur and you provide your service to private individuals or small business owners, you issue invoices with taxes. Here, too, nothing changes compared to the invoice abroad.

Things only get tricky if both you and the other party are normal entrepreneurs. For invoices to the EU abroad, you must deal with the reverse charge procedure. If you issue invoices to third countries like the USA, you must even comply with country-specific regulations.

(Photo: Ken Teegardin / Flickr / CC BY-SA 2.0

How do I create an invoice? The 5-step guide to invoice creation

The easiest way is if you use a bookkeeping tool for creating invoices. Depending on the tool, you can create not only invoices, but also offers, reminders, invoice corrections, etc. with it. This is especially useful if you regularly write invoices and want to learn and simplify your accounting. If you only create invoices occasionally, you can just use a text creation tool like Microsoft Word and create a legally compliant invoice in a few steps:

Step 1: Customer Information

At the top left, as with a letterhead, enter all important data of your customers:

• Company name/Name
• Address
• Contact information
• Possibly tax number
• Possibly customer number

Step 2: Invoice Details

Below or to the right are all the little details that are particularly important to the tax office:

• Continuous invoice number
• Invoice date
• Possibly payment target (You can also note this at another point.)
• Delivery date or delivery period
• Possibly reference or order number

Step 3: Service Information

In order for your customers and the tax office to be able to assign the service (and e.g. check that the correct tax rate has been used), you must list each service - either individually or under a collective term. In the latter case, you should list in an extra field what is all included. To be on the safe side, enter all this information:

• Product/Service
• Possibly quantity and unit (e.g. 3 hours, 7 pieces) or alternatively flat rate
• Unit price per unit (net)
• Possibly tax rate
• Possibly discount
• Net total for each service/product
• Net total amount
• Possibly net tax amount
• Gross total amount

Step 4: Your Invoice Data

What should never be missing on your invoices are your complete and correct data. You can, for example, include these at the top of the document in the header or at the bottom in the footer. The most important ones are:

• Possibly company name
• Your full name
• Your full (business) address
• Contact information: telephone number, e-mail address, possibly website
• Possibly your VAT ID and your tax number
• Your bank details

Step 5: The Invoice Text

Even though your invoices don't necessarily have to correspond to a friendly letter, you should add a few words above or below the list of services. The content is partly self-explanatory, but can also contain important information:

• Salutation
• Possibly friendly thanks for the commission and introductory sentence into the service statement
• Possibly (again) reference to the payment term
• Possibly note on the small business regulation
• Reference to where your bank details are listed on the invoice
• Friendly closing formula
• Your name

Example of a sample invoice

Recommended invoice programs and accounting software for creating invoices

You can create invoices with the following tools:

• sevDesk
• Lexoffice
• orgaMAX
• Zervant (free)
• easybill
• FastBill
• WISO MeinBüro
• Papierkram
• Billomat

In our article about the best invoice software we also detail the various tools for invoice creation. More information and additional software can also be found in the accounting software category on OMR Reviews.

What happens after the invoice is created - cancellation, shipping, reminder, collection, arrears

Once your invoice is created, the fun really begins. Sending in the digital world is still quite easy: just send it by e-mail. But you can also send your invoices old school by mail or hand them over in person.

Cancellation

If it is discovered afterwards that the invoice is not correct, it must be cancelled. An error cannot simply be ignored. This will cause problems with the tax at the latest. With a cancellation invoice you do everything right. It is similar to the original invoice - it contains the invoice number, the invoice date and the service details of it. In addition, it also contains a cancellation invoice number. Also, a minus sign is placed before the cancelled invoice amount.

The invoice must contain the term "Cancellation" or "Invoice Correction". But avoid the term "Credit Note". This causes unnecessary confusion for the tax office. What is meant by a credit note, you will find out further down in the article.

Default and Reminder

A payment target should always be indicated on your invoices. If you have not received any money a few days after the payment target, your counterpart is in default of payment. Since this is often not done with malicious intent, you first send a payment reminder, unless you don't want to or you are sure of malicious intent.

You can then send a first reminder directly. Since you incur extra effort, you can charge reminder fees for this. There are no legal regulations for this. But an amount between 5 and 7.50 euros has established itself as the guideline. For the second reminder between 7.50 and 10 euros. If the debtor is a business customer, you can charge a reminder fixed fee of 40 euros.

Your payment reminders and reminders must establish a clear reference to the original invoice. For this you can, for example, show the invoice number. Tip: In many invoice generation softwares you can directly create a reminder from an invoice.

You should set a new payment target for each step. Every 14 days is considered standard. If the receivable party shows reluctance to pay despite reminders and threat of legal action or foreclosure, you will take legal action. However, you should inform your customer about this when sending the last reminder. Often, the threat alone is enough to convince them to pay.

Collection

If you are still unsuccessful despite reminders and threats of collection or legal steps, it comes to the collection. You have several options for this:

• Hire a collection agency
• Consult a lawyer
• Claim the claim

If you employ a collection agency, you usually get your money straight away - minus the cost of the service. The collection agency will then get the money back from the debtor. It can also initiate a legal order procedure. But it is not allowed to give you legal advice or represent you in court.

You need a lawyer at the latest when it goes to court. But you can also get legal help directly instead of the collection agency. They can take care of customers who refuse to pay in particular. The costs that arise are borne by the non-paying customers.

Do invoices need to be archived or not?

The retention period for invoices is ten years. This affects both incoming and outgoing invoices, but does not necessarily apply to private individuals. Only when it becomes tax-related, you should also comply with the deadline here.

Throughout the entire ten years, you must ensure that the invoices are not lost, manipulated or damaged. They must always be assigned to the underlying business transaction. All invoices must be available quickly in an audit.

By the way: If you send an invoice by e-mail, you may also have to archive it. This is only the case if it contains additional information (for example about discounts). However, you do not archive standard emails with friendly pleasantries.

Receipt, Credit, Advance Invoice - The Most Important Terms Briefly Explained

We have already told you a lot about invoicing. However, a few terms did not make it into our explanations. Therefore, here are a few brief explanations:

Receipt

With a receipt, you confirm the receipt of a service or payment for the service. This is similar to a receipt. The receipt says:

• The name of the person receiving the service,
• The issue date,
• The type and quantity of the product/service,
• The tax amount and tax rate,
• The total price in numbers and words.

A receipt is mostly used for cash sales.

Credit Note

A credit is essentially an inverted invoice. An accounting credit (issued by the receiver of the service) replaces an invoice (issued by the service provider). This is done, for example, in the case of commissions in sales or monthly bills for free journalists.

Advance Invoice

You can issue a larger invoice in several smaller invoices. This makes sense if you take advance payments or if a service is provided over a longer period of time. In an advance invoice, you then calculate a part of the total service. Important: The last invoice you create is called final invoice. It must show the total demand, the amount already paid and the remaining demand.

Now you should be well informed and prepared to be able to create invoices relaxed. If not, it is best to sit down with a tax consultant or bookkeeper or actually have a look at the common tools for creating invoices on the market. This can save you a lot of time and nerves when creating invoices!