In elementary school we had three guys named George.
When teachers wanted to call them out they had to add unique identifiers to their name. Otherwise all three of them would stand up at the same time and cause confusion.
The same thing happens when you don’t differentiate your invoices and for that purpose you would use an invoice number.
Find out what is an invoice number and why is it important.
Learn how you can customize it for better documentation and accounting purposes as well as what to do if you get it wrong, because a mistake could cost you a lot of money.
1. What Is an Invoice Number and Why Do You Need It
An invoice number is the “name” of an invoice. It’s a number you assign to each individual invoice to make them unique.
This allows you to properly document income for tax and accounting purposes.
What happens when you don’t have an invoice number:
Imagine this, you issued 5 invoices to the same client this month, which are due within 30 days.
The client sends you a payment for $500
To which invoice do you assign the payment?
If you don’t have an invoice number you have no clue!
In some countries an invoice number is a legal requirement for a proper invoice.
Besides, clients will usually reject invoices without an invoice number since it makes it impossible for them to track payments on their end.
The invoice number is an essential element of an invoice and should be displayed clearly in the header.
2. How to Number Invoices – Different Formats of Invoice Numbers
No one can force you to use a particular numbering system. Other than that it must be made up of numbers, letters and can contain special characters such as slashes (/) or dashes (-).
Simple sequential numbering
Simply pick a starting number for the first invoice and increment it for every next invoice.
So if the first invoice is numbered as 0001, the second will be 0002, the third one 0003 and so on.
TIP: you don’t need to start with 0001, you could start with 0187 or 2481(or any number for that matter) if you don’t want to come off as a newcomer
Some businesses refrain from using this system because it is easy for competitors to find out your sales.
They can subtract the first and the last invoice number for the day or the month and find out exactly how many sales you do.
Sequential numbering with date
Pick a starting number and add the date on which the invoice is issued.
For example, an invoice issued on December 5th 2020. could be numbered like:
- 051220200001 – DD/MM/YYYY
- 120520200001 – MM/DD/YYYY
- 2005120001 – YY/DD/MM
- 05-Dec-2020-0001 – DD/MM/YYYY
The date format is entirely up to you. And it’s easier to make the invoice number last.
Sequential numbering with customer ID
You can also use a system which associates every invoice with a specific customer.
Let’s say you are invoicing Apple, your invoice number could look like
Sequential numbering with Project Name
If you are working on a project involving several clients you may want to tie every invoice to the specific project even though you invoice different clients.
So one client would be invoiced with TX77-0001, the other one with TX77-0002 and so on.
3. What If You Get It Wrong
Incorrectly numbered invoices will look suspicious if your accounts are audited!
Even worse, if you end up with several duplicate invoices the chance of a mistake increases significantly.
You can easily miscalculate your tax thinking that you’ve included an invoice while there were two invoices with the same number.
Or you simply missed an invoice because they weren’t following the sequential system.
Instead of keeping track of every invoice number you should let computers do the work for you!
This saves time, energy and significantly decreases the risk of a mistake.
Whichever numbering system you decide to use just remember that each invoice must have a unique number.