As a plumbing business, your goal isn’t just to install pipes and fix leaks, it’s also to make money. If you don’t send proper invoices you might not get paid for your services. So, how do you write an invoice, and what needs to be in it?
To write a plumbing invoice you need to know which type of invoice you need to send, make it look professional, and include all the proper information. You can use a template to write your invoices, create your own form, or even use different services or programs that create invoices for you.
Invoices need to look professional, be the appropriate type of invoice for the situation, and include all the necessary information. This can get confusing, so keep reading to learn more about the details of writing plumbing invoices.
What is an Invoice?
An invoice is a document that is a record of your transaction with the customer. The invoice tells the customer how much they owe you and the goods or services provided. It is basically the bill for your goods or services. Whether it was fixing a pipe or installing a shower, you should provide your customer with an invoice.
Because domestic plumbing is a service done typically for individuals and not companies, you will send what’s called a consumer invoice. This just means it’s an invoice that is sent from a business to a customer.
There are three main kinds of invoices in Australia. There are regular invoices, tax invoices, and recipient-created tax invoices. (Source) All three are very similar but have some slight differences, and the different invoices are used for different situations.
Understanding Tax and Invoice Vocabulary
There tends to be lots of fancy wording when it comes to things like legal documents, and tax forms. This can definitely cause a lot of confusion and uneasiness for those trying to run a business because it’s hard to understand in simple terms. To simplify everything and help make things easier to read, let’s go over the vocabulary you may run into when learning how to work around taxes and invoices.
ATO: This stands for the Australian Taxation Office. They are in charge of managing collection of Australian taxes.
GST: This is Australia’s Goods and Services Tax. It’s generally 10% added onto the sale price of taxable items.
Registering for GST: Generally, Australian business owners need to register for GST if the business turns over $75,000 or more annually, if it is a non-profit organization with a turnover of $150,000, or if you are a taxi/ride-sourcing driver (regardless of annual turnover). The GST of taxable goods and services needs to be included in all sales prices for customers and clients to see. It is always best to seek advice from your accountant or bookkeeper regarding registering for GST as there are a number of additional considerations that may need to be taken into consideration before registering, especially around timing of registration.
ABN: This is an Australian Business Number. This is used to identify your business and is required to register for GST. It is also required on some official documents and forms pertaining to your business.
Taxable Sales: Goods and services sold in Australia are usually taxable and should have GST included in the pricing when they are, except for GST-Free, input-taxed or an out of scope supplies.
GST-Free Sales: These are tax-free sales including some, but not all, basic foods, education courses, medical and healthcare, international mail, farmland, churches and charities, menstrual products, medicine, childcare services, care for disabled people, water, and more. For these goods, you are not required to include GST in pricing.
Input-Taxed Sales: The sales of goods or services without GST included in the price. Some input-taxed sales include financial supplies and rent on residential properties.
Tax Invoice: A payment request form from business to customer with business information, customer information, list of goods or services and their total, GST cost, and total amount due. It is required on sales of taxable supplies over $82.50 when the supplier is registered for GST. The purpose is to document sales within the business, how much GST customers have been charged, and proof of payment request. If a customer asks for an tax invoice, the business has 28 days to provide one to them. Invoices are different from receipts because they are proof of request of payment and are given before a payment is made. A receipt is proof of payment and is given after payment is made.
GST Credit: A credit for GST paid on purchase of goods or services.
Now that you are familiar with these abbreviations and concepts, let’s move on to how to write an invoice.
Different Kinds of Invoices
The first thing you need to know to write an invoice is which kind to write, and to do that you need to know what the different kinds of invoices are. There are three main different kinds of invoices in Australia: regular invoices, tax invoices, and recipient-created tax invoices.
The first kind of invoice is a regular invoice. This invoice is the most basic kind. There are a few things this invoice needs to have. Here is what the Australian Government Business website says a regular invoice would generally include:
- Company Name
- Contact information for your business
- Date invoice was made
- Quantity and price of services or product
- Payment details
- Customer details
- The invoice number
- Your ABN, (Australian Business Number) if applicable.
The next kind of invoice is a tax invoice. This is just like a regular invoice and includes all the same things, company name, date, price, etc. However, the big difference between the two is that a tax invoice includes the service or product’s GST (goods and service tax). Also, it needs to be clearly labelled as a tax invoice and have the suppliers ABN. This tax information is necessary in many cases and can be very useful to the customers.
It is required by the ATO that for taxable sales over $82.50, a tax invoice must be issued. So, if your goods or service cost over $82.50, you are registered for GST and selling taxable items then you need to supply customers a tax invoice. Generally, this will most likely be the type of invoices you will be issuing.
The ATO have different requirements for tax invoices under $1,000 than invoices over $1,000. Tax invoices for sales of $1,000 or more also need to show the purchasers/buyers name or ABN.
Recipient Created Tax Invoice
Finally, there are recipient-created tax invoices. These invoices are not as common, because it’s when the product or service is provided, then the buyer decided on the price or value of the product and sends back an invoice. (Source) This type of invoice can be slightly confusing, but as a plumber, you shouldn’t need to deal with these. Care needs to be taken when generating RCTI’s as RCTI’s can only be issued in a very limited set of circumstances. These invoices probably won’t apply to your pluming business.
Which Type of Invoice Should I be Writing?
Now that you know the difference between the three different kinds of invoices, you’re probably asking yourself, which type of invoice should I be writing? The type of invoice you write will depend on a few factors. The biggest one is the size of your business, and this will affect whether you send normal invoices or tax invoices.
Most plumbing businesses that turnover $75,000 annually will need to be registered for GST. Why is this important to know for writing invoices? Because according to business.gov.au, “if you are registered for GST, you need to send tax invoices for every taxable sale over $82.50.”
So, if you’re business turns over $75,000 each year or you anticipate a turnover of $75,000 or more, then you may be required to register and send tax invoices for those sales. Normally, plumbing services will cost more than the $82.50, so most of your services will require tax invoices.
We cannot stress enough the importance of engaging the services of a professional such as a bookkeeper or accountant around the registering for GST, and how it may apply to your circumstances. As with any tax, there are often complex inclusions, exclusions and variations to the above general statements that are outside the scope of this article. You should seek advice early if you have reached any of the thresholds or may reach them in the future.
What if your business doesn’t turn over that much money per year? Well, then it is possible that you may not be required to be registered for GST. If you are not registered for GST you don’t sent tax invoices. However, you still need to send regular invoices that include your ABN, if you have an ABN.
A customer might request a tax invoice for their own records to claim a GST credit. If this does happen and, you are registered for GST and making a sale taxable sale, your business has 28 days to send the tax invoice to them if the sale is over $82.50 (including GST). (Source) Generally, plumbing businesses would be writing tax invoices, unless the business is small. In that case, it only needs to create regular invoices.
How to Write a Tax Invoice
Again, a tax invoice is a document your plumbing businesses will have to provide to customers for most purchases at or above $82.50 (including GST). Invoices are proof the business is requesting payment for their goods or services, and they show the customer how much is due for any goods or service costs, taxes, and even fees or discounts.
To create your tax invoice, you can follow a template or just make your own format. There are plenty of invoice temples available online that you could use. Both are good options, as long as you included the necessary information and it looks professional.
The form has to plainly show that the document is an official tax invoice, it must list your business’s name and contact information, your business’s ABN, (Australian Business Number), the date the invoice was given, a description of all individual items or services sold, their quantity and price, the GST amount if applicable, and how much of the sales cost is taxable.
An invoice can be issued as a hard copy (paper) or electronically. Electronic invoices can be in a variety of formats, the most common being a pdf generated by accounting software and emailed to customers. Due to the insecurity of email and increased activity by hackers, the Australian government have committed to moving forward with a more secure system of invoicing whereby invoices can be sent from one businesses accounting system directly into another businesses accounting system via a secure network. This is known as e-invoicing.
No matter which way you send it, electronic invoices hold the same requirements of information as hard copy invoices. One isn’t better than the other, but different people will prefer hard copies over online copies.
While electronic invoices can seem complicated to some people, physical copies of invoices can be easier for the company and customer to lose and keep organized as time goes on. This means that electronic invoices may be a better option for you if you have a hard time organizing and managing important documents and financial records. This can also be helpful when the time comes for you to do your taxes as they can be stored online for your accountant to access.
Online Invoice Services
If you are not confident in writing invoices or are too busy, then you can get online services such as a bookkeeper or administration assistant to help you. There are online services that help make it much easier for you to write and send online invoices to your customers. Using online programs such as Xero can also make the move to online services more streamlined as the programs that generate the invoice can be accessed from almost anywhere in the world.
While these services could be a great help to some, make sure you look at their individual features and see what your company needs before deciding which service to use.
Why is Invoicing Important?
After reading all of that, you might be wondering if it’s worth the effort. And the answer is a resounding yes. Writing proper invoices is critical for your company in many ways.
The two largest reasons invoicing is important is for payment purposes and tax purposes.
First, invoices help the customer know how much to pay you for your work. It doesn’t matter if you are the best plumber in the business, if the customer doesn’t know how much to pay you, then you might not get paid. That’s a problem that no business wants. It is better to spend the time now to write a good invoice than have to deal with this type of problem later.
Also, writing good invoices helps both you and the customers keep accurate records. This can help you make sure you are paying the right amount in taxes. Most people don’t find taxes very fun, but they are important. If your business is not paying the correct amount of taxes then you could get into some serious trouble.
That’s why it’s important to know what you are doing while writing invoices for your plumbing service or any other business.