Three documents get sent to a customer about the same job, and they are often produced from the same template with the heading changed. That is fine — the arithmetic really is identical. What is not identical is what each one promises, and that is the part that decides whether you can chase the money, whether the customer can reclaim the tax, and whether you have accidentally agreed a price you cannot honour.
What is the difference between a quotation, a proforma and an invoice?
It is a question of when the document sits in the job and what it commits you to. Same lines, same tax, same total; three different meanings.
| Document | When it is sent | What it means |
|---|---|---|
| Quotation | Before the work is agreed | An offer to supply at these prices. Not a request for payment. Once the customer accepts it, it is generally binding on you — which is why it carries an expiry date. |
| Proforma invoice | After the order, before supply | A request for payment in advance. It looks like an invoice and is not one: it is not a tax invoice, and the tax shown on it cannot be reclaimed by the customer. |
| Invoice | On or after supply | A demand for payment for work already done or goods already sent. This is the document that starts the payment clock and that both sides put in their books. |
A proforma is the one that trips businesses up. If a customer pays against a proforma, send a proper invoice afterwards — that invoice is what goes in your sales records and what entitles them to reclaim the tax.
What has to be on an invoice?
The exact list is set by the tax rules where you trade, and it varies. What follows is the set that appears in nearly every jurisdiction’s version of the rule, and that a customer’s accounts department will look for before they pay you:
- The word "invoice", so it is not mistaken for a statement or a receipt.
- A unique, sequential invoice number.
- The date it was issued, and the date the goods or services were supplied if they differ.
- Your business name, address and contact details.
- The customer’s name and address.
- A clear description of what is being charged for, line by line.
- The amount charged for each line, and the total before tax.
- The rate and amount of any tax, shown separately.
- The total due, and the date it is due by.
- How to pay — bank details, or a payment link.
If you are registered for VAT, GST or an equivalent, you will also need your registration number on the document, and the tax has to be shown as its own line rather than folded into the total. A tax-registered customer cannot reclaim tax that is not stated separately, so an invoice that hides it is one you will be asked to reissue.
How should I number my invoices?
Sequentially, with no gaps, and never reusing a number. That is the whole rule. The prefix and the padding are yours to choose — INV-0001, 2026/014 and 000123 are all fine — but the sequence has to be traceable, because a gap in it looks exactly like an invoice you issued and did not declare.
If you cancel an invoice, do not delete it and reuse the number. Issue a credit note against it, or mark it cancelled and move on to the next number. Two documents with the same number is worse than one with an awkward history.
How is the total on an invoice worked out?
Line by line, then discount, then tax, then anything added afterwards. The order matters: a discount applied after tax produces a different figure from the same discount applied before it, and only one of them is right.
The working
Website design: 1 × £2,400.00 = £2,400.00 Copywriting: 8 × £95.00 = £760.00 Printed leaflets: 500 × £0.42 = £210.00 Subtotal = £3,370.00 Less discount 5% = −£168.50 Subtotal after discount = £3,201.50 VAT at 20% on £2,992.00 = £598.40 VAT at 0% on £199.50 = £0.00 Total = £3,799.90 Less deposit paid = −£500.00 Balance due = £3,299.90
Two things in that example are worth spelling out. The discount is taken off before tax, so the tax is charged on what the customer actually pays. And because the leaflets are zero-rated and the rest is standard-rated, the discount has to be split across the lines in proportion to their value — otherwise the 20% is charged on part of the zero-rated goods and the invoice overcharges tax.
Do my prices include tax or not?
Pick one and say which on the document. A shop quoting to the public almost always works tax-inclusive, because that is the price on the shelf edge. A business invoicing another business almost always works tax-exclusive, because the customer reclaims the tax and cares about the net figure. Both are correct; mixing them silently is what produces an invoice nobody can reconcile.
Going from one to the other is division, not subtraction, and this is the single most common arithmetic error on an invoice. To take 20% tax out of a £120 inclusive price you divide by 1.2, giving £100. Taking 20% off £120 gives £96, which is wrong by £4 and looks entirely plausible:
The working
Right: £120.00 ÷ 1.20 = £100.00 net, £20.00 tax Wrong: £120.00 × 0.80 = £96.00 net, £24.00 tax
What payment terms should I set?
Whatever you and the customer agreed, written on the invoice as a date rather than as a phrase. "Net 30" means nothing to a person paying it in a hurry; "Payment due 25 Sep 2026" cannot be misread. Thirty days is the common default for business customers, fourteen is increasingly normal for small suppliers, and payment on receipt is standard for one-off consumer work.
For a new customer or a large job, ask for a deposit and invoice the balance on completion. A proforma is the right document for the deposit request: it asks for money before you have supplied anything, which is exactly what it is for.
A step-by-step: writing one from scratch
- Decide which document you are sendingBefore the work is agreed, it is a quotation. Before you supply but after the order, it is a proforma. After you supply, it is an invoice. Getting this right at the start avoids sending a demand for money before you have earned it.
- Number it and date itTake the next number in your sequence and date it the day you issue it. If the supply date is different — goods sent last week, invoice raised today — put both on, because the supply date is what decides which tax period it falls in.
- Write the lines the way the customer will read themOne line per thing you are charging for, described in words the customer recognises from their own order. "Consultancy" is a line that gets queried; "Consultancy — brand workshop, 14 Aug" is a line that gets paid.
- Add tax at the rate for each lineIf everything is at one rate, one figure does it. If the document mixes rates — standard-rated work alongside zero-rated printed matter, say — each line carries its own rate and the invoice shows a subtotal per rate, which is what a registered customer needs to file.
- State the total, the balance and how to payShow the total, subtract anything already paid, and give the balance due as its own figure. Put the bank details on the document itself rather than in the covering email, which is the thing most likely to be lost.
Common questions
Can I send an invoice if I am not registered for VAT?
Yes. An invoice is a demand for payment and does not depend on being tax-registered. What changes is that you do not add tax and you do not show a registration number, and you must not describe any part of the total as tax. If your customer asks for a "VAT invoice" and you are not registered, tell them — an invoice with no tax on it is a perfectly good document, it just is not that one.
Is a proforma invoice legally binding?
Not in the way an invoice is. A proforma is a request for payment in advance rather than a demand for a debt already owed, so it does not create a receivable in your books and the customer cannot use it to reclaim tax. Once they pay it, issue a real invoice for the same amount — that is the document both sides rely on afterwards.
How long should a quotation be valid for?
Thirty days is the usual choice, and shorter if your own costs move. The expiry is there to protect you: a quotation the customer accepts is generally binding on you at that price, so one with no end date is an open-ended commitment to hold a price against materials, wages and exchange rates that will not hold still. Put the date on the document rather than in the email.
What is the difference between an invoice and a receipt?
An invoice asks for money; a receipt confirms it arrived. They are often the same figures on the same layout, which is why they get confused, but they do opposite jobs and both sides need both. If a customer pays immediately, you still issue an invoice for your records and a receipt for theirs.
Should the discount go before or after tax?
Before. Tax is charged on the price the customer actually pays, so a discount that is applied after tax has been calculated leaves you having charged tax on money nobody paid. On a document with more than one tax rate the discount also has to be split across the lines in proportion to their value, or the tax on each rate comes out wrong even though the total looks plausible.
Why does my invoice total not match the sum of the lines?
Almost always rounding. If each line is rounded to the penny for display but the total is calculated from unrounded values, the printed column will disagree with the printed total by a penny or two — and the customer checking it with a calculator will find that before you do. The fix is to round each line as it is created and add up the rounded figures, which is what this site’s builder does.
Can I change an invoice after I have sent it?
Not by editing it. Once an invoice is issued and numbered it is part of a sequence both sides may have recorded, so the correction is a credit note against the original followed by a new invoice, or a cancellation that leaves the number retired. Quietly reissuing the same number with different figures is the version that causes an argument later.
Check this before you rely on it. A free guide to everyday arithmetic — not tax, accounting, financial, legal or medical advice. The working is shown above so you can verify it against your own figures. See our terms of use.