Accurate billing or invoicing is a key component of accounting for independent contractors or small-scale business owners. But to make invoices for independent contractors is not a piece of cake.
Whether you bill for services by the hour or on a flat rate, create clear, easy-to-read invoices that help you stand out as a professional. Furthermore, a good independent contractor invoice helps you get paid on time.
But before that, let’s understand who are independent contractors.
Who are independent contractors
An independent contractor is an individual, company, or entity that provides goods or services pursuant to a written contract or an oral agreement. Unlike regular employees, independent contractors do not work for one employer on a regular basis but work as needed. Independent contract workers are typically paid on a freelance basis.
How are independent contractors paid?
As an independent contractor, you can be paid in several ways. But make sure that the way you want to get paid matches the way your clients want to pay you. Establish the mode and time of payment before you begin working with your customers. You can get paid in many ways including:
1. Hourly basis
2. Weekly basis
3. Monthly basis
4. Based on the delivery of your work
The mode of payment can be:
1. Through a contractor invoice
2. Through direct account transfers
3. Various tracking and payment software
How to invoice as an independent contractor
There is no one answer to the question, "How do I bill as an independent contractor?" However, you should consider these factors to make a better decision:
- Your preferred method
- Preferred method of your client
- How long it takes to send as well as receive the payment
- Amount of fee
As an independent contractor, you need to know how to bill your customers while maintaining some flexibility. This helps build a mutually beneficial system that makes the whole process more efficient.
Things to keep in mind while writing a good independent contractor invoice
Knowing how to make an independent contractor invoice is an essential skill. Without this, it can be difficult for you to receive your full payment on time. When this happens, you may spend more time chasing money and less time providing quality service to your customers.
Here are some easy steps on how to create and send an invoice as an independent contractor.
1. Identify the document as an invoice
Do not take this for granted. Make it absolutely clear to your customers that you are sharing an invoice and not some document.
- Identify the document as a bill or an invoice.
- Ensure that the real word "invoice" is at the top and in the center of the document.
- It should be perfectly clear and visible. Perhaps, use a large bold font to highlight it properly.
2. Enter a unique invoice number
Each contractor invoice must have its own unique invoice number. The contractor invoice is an important record for you and your customers.
- The easiest way to keep track is to assign consecutive and unique numbers to each invoice, starting with invoice 001, and invoice 002.
- If a specific invoice needs to be discussed, the unique invoice number makes it a lot easier for both you and the client to recognize it.
3. Invoice date
Each invoice must be dated appropriately. It is usually located at the top next to the invoice number. This is especially important when enforcing payment deadlines and contractual penalties.
4. Add your business information
As a general rule, do include your name, account number, IFSC code, address, phone number, taxes levied, and email address on the contractor invoice. You can also insert your company name, and your company number like a GST number and logo if you desire.
5. Provide your client's contact information
As you included yours, the same way you should include the contact details of your client. Apart from the general information like their company name, phone number, email ID, etc you should also include other details like their name, and department.
6. Provide service details
Make a list of all the services you offered and support them with as much detail as possible. The more details or supporting facts you provide, the less likely your contractor invoice payment will be declined. Add at least the following:
- Service description
- The number or amount of hours worked
- Wage rate
- Subtotal for each service
This is easy to understand in a tabular format with columns representing each piece of information. Each task or service is recorded in a separate row.
7. Specify payment amount and payment terms
After mentioning the service details, you are required to provide the total amount.
- The last row of the spreadsheet is the sum of all subtotals that make up the final amount of the contractor invoice.
- Many invoice formats also have this final figure at the top of the document.
Often, that is all customers want to know, so having it at a glance helps.
8. Specify payment terms
You need to let your customers know how they must pay you, so you need to list all the payment methods you accept. Here are some tips:
- Provide payment information regarding your preferred method (PayPal, bank transfer, cheque, credit card, etc.).
- If you have a late fee policy, share it.
- Add a payment link, if desired.
By now you would have already discussed the terms and conditions of payment during the briefing stage, but we recommend that you include them in your invoice too. Encourage timely payments and remind them that late payments have consequences. For this reason, most independent contractors include the bill date and payment due date on all their contractor invoices.
9. Enter the payment due date
Make sure that you write the payment due date in a bold, easy-to-read font. Be as specific as possible about payment dates. Write full dates, such as "Payment Due December 30, 2022," rather than vague payment terms such as "Payment Due Within 30 Days," which can cause confusion and payment delays.
Each payment method has its own processing time. So don't forget to go through the payment options section so you can set the deadlines accordingly.
Tips to avoid mistakes while making independent contractor invoice
1. Don't forget to track your time
From the beginning of your first job, you should track how many hours you worked for each customer. You can take the traditional way and maintain a diary for the same.
Alternatively, use billing software with time recording capabilities. Whatever you do, make sure you have accurate records. Otherwise, you won't be able to generate legitimate contractor invoices.
Write down when you started, when you finished, what you did, and everything else in brief.
2. Have this invoice sent immediately
Sending the invoice to the client as soon as the work is done keeps both parties organized. Inform your customers that punctual payment is important because you sent the invoice immediately.
Since the work has just been completed, it is fresh in the mind of your customers. Because of this, your customer will push the invoice to the processing list immediately.
And that means getting paid on time and keeping the company's cash flow flowing.
3. Consistent invoice format
Formatting your invoices consistently saves time and maintains a professional look.
- You can tweak the invoice, such as removing unwanted rows in the spreadsheet, but the rest key elements should remain the same.
- A good consistent contractor invoice means that everything is perfectly clear for the customer. The customer doesn't need to ask you where specific information is on the bill.
- It's not the place to play with different fonts and colors.
4. Share payment terms
Talking about terms of service is a part of the onboarding process. It is also okay to reinforce these terms and conditions on the invoice. Your customers have already agreed to them at the beginning of the job when you signed the contract - so mentioning it on your contractor invoice is just a reminder.
5. Track late payment
Don't wait a month before you start tracking the overdue invoices.
- Send your customers the first nudge note as soon as the payment deadline has been crossed.
- Politely remind them of the amount pending and how they need to pay it.
- People forget things. So be diligent but patient with all subsequent follow-ups until you receive your payment.
- The key is to act quickly but understandingly.
- The longer you take to make the first contact, the more discomfort you will experience and the more difficult it will be to get your bills cleared.
6. Keep things straight for tax time
Billing contractors doesn't mean just adding dollars to your account. It's also about meeting your tax obligations.
Invoices are a large part of your financial records and therefore they need to be accurate. These serve as proof of your income tax returns from self-employment.
Continuous monitoring of your income, business expenses, and tax credits helps you meet your health, social security, and income tax obligations. Professional contractor invoices are one way to do this in your business.
7. Personalized invoice
This is not for everyone. However, personalizing your invoice may be a perfect match for your brand as long as it doesn't affect the clarity of the information. Perhaps you can sign off with something that reflects the last conversation you had with your customer, or something you saw on the customer's social media. Just a sentence like this:
- Good luck with the competition!
- Congratulations on your new baby!
- Have fun in Manchester!
A little bit of human touch can do wonders.
Contractor invoice template
Most of the invoice templates are designed for small-scale businesses, but if you are an independent contractor, you should be able to customize your invoices to meet your specific needs. Perhaps you will have to count the hours and add their costs accordingly. A Simple sales invoice won't work in this situation.
Invoices for independent contractors should include several things such as your name, your firm's name, the client's name, etc. In invoices for independent contractors, there are certain key items that every invoice should include. This information includes:
- Your name (or company name) and contact information
- Your client's name and contact information
- Invoice date
- Invoice number
- Service item list and description
- Date or duration of service
- Price breakdown, such as hourly or flat rate
- Applicable taxes
- Total payment
- Penalties for late payment
- Other relevant information
Bonus tips for making personalized contractor invoice templates
1. Editable fields
If you issue invoices frequently, you may find it useful to create personalized invoice templates for contractual work to save time. Make sure your document contains the above-mentioned fields as editable fields. You can then easily edit variables such as tariffs, working hours, items, or customer information to suit your needs.
2. Manage them legally
Invoices for independent contractors are more prone to mistakes as they are not evaluated by the accounting team. As an individual contractor, it is your sole responsibility to develop the independent contractor invoice template as per the legal claims.
3. Keep your customers in mind
Moreover, you should also keep in mind that your customers are comfortable and easily able to read the invoices. Therefore, you should create simple, and clear invoices.
4. Organize well
As an independent contractor, you will provide a variety of services to your clients. Thus, it is important to have an easy way to control payments. Try to find out simple ways or software and tools to organize your customer accounts while simultaneously managing your business finances.
As an independent contractor, contractor invoicing is an integral and one of the most crucial parts of your business. Therefore, it becomes your responsibility to do it the right way.