Invoices are formal requests for payment from your business to another, so it's important to get them right. However, the distinctions between different types of invoices and when to use them can trip some people up.
Sending the wrong type of invoice is not just an administrative error — it can delay your payments, cause headaches for your accounting team, and even violate compliance rules.
What Should an Invoice Include?
According to the UK Government, invoices must include: a unique "invoice number"; your company name, address, and contact information; the company name and address of the customer; a clear description of the goods or services provided; the date the goods or services were delivered; the date of the invoice; the amount being charged; VAT amount if applicable; and the total amount owed.
Different Types of Invoices
Standard Invoices
This is the most common type of invoice issued by a business to a client. A standard invoice is what you send after delivering goods or services 90% of the time. Most standard B2B invoices include a payment deadline, such as "Net 30," meaning the client has 30 calendar days from the invoice date to pay in full.
The main problem with standard invoicing is the cash-flow gap. If you deliver on a huge project and issue a standard invoice on 30-60-day terms, you're essentially waiting a month or two to get paid.
Pro Forma Invoices
A pro forma invoice looks exactly like a standard invoice, but you send it before you have delivered the work. It is usually a preliminary cost estimate sent before work starts to outline expected charges and get approval from the client.
A pro forma invoice is not an immediate demand for payment. Key differences: it's not a demand for payment, you don't need to include an invoice number, it must be labelled as a pro forma invoice, you should include a validity period, and it's not legally binding.
Recurring Invoices
Recurring invoices are ideal for businesses that rely on retainers, memberships, or software subscriptions. Instead of manually generating a new invoice every time you deliver work, you set up an automated system that issues the recurring invoice on a fixed schedule.
Having clients on a recurring invoice arrangement is valuable because it shows lenders that you have a predictable stream of income.
Credit Notes and Debit Notes
In business accounting, you cannot edit or delete an invoice once it has been sent because this destroys the audit trail. Instead, you use credit and debit notes to add or subtract value.
Credit notes are negative invoices that reduce the amount a client owes — for example, when a client returns damaged goods and needs a refund.
Debit notes act as an addition to the invoice, telling the buyer you're increasing the amount they owe. They might be used to fix an undercharging error or add extra scope that wasn't on the original invoice.
Comparing Invoice Options
| Invoice type | When you send it | Legally binding? | Best used for |
|---|---|---|---|
| Standard invoice | After delivery | Yes | Everyday B2B sales |
| Pro-forma invoice | Before delivery | No, estimate only | Approval for large corporate contracts |
| Recurring invoice | Automated schedule (monthly) | Yes | Monthly SaaS subscriptions or retainers |
| Credit/debit note | When adjusting a bill up or down | Yes | Fixing mistakes or over/undercharges |
UK Specifics: VAT Invoices
If you're operating in the UK and you and your customers are VAT-registered, you cannot just send a standard invoice to another UK business — you must send a formal VAT invoice, unless you're selling goods or services under £400 including VAT.
A VAT invoice needs to include your VAT registration number, the tax point, the net amount, the VAT rate applied to each item, and the total amount including VAT. If you fail to send a proper VAT invoice, your client cannot legally reclaim the tax from HMRC.
Why Understanding Types of Invoices is Important
Understanding the difference between types of invoices keeps your business compliant and helps you avoid unnecessary breaks in your cash flow. Too many SMEs rely on standard invoices with long payment terms that keep them waiting 1-2 months to be reimbursed.
If too much of your operating cash is tied up in unpaid invoices, invoice finance allows you to advance cash from your standard, recurring invoices almost immediately — 80-90% in as little as 24 hours.