Importance of invoices for business | Divvy

It may be easy for small businesses to rely on third-party payment processors like Venmo, CashApp, and Zelle. However, it’s also a good idea to use official invoicing software to keep track of important information and records—and here’s why:

#1: Payment tracking

A formal invoice sent to a client or customer is an official record of what you provided and what your customer owes. This makes invoicing the easiest way to track payments. This information is crucial during annual budget reviews and for tax filing purposes.

#2: Maintain records

Businesses need to keep records of just about everything. Invoices make key information quickly accessible by including the invoice date, the amount owed, and whether the customer has an outstanding balance or completed payment.

Having a clear and concise view of this information will make your profit and loss (P&L) statement and budget easier to manage.

#3: Easy tax filing

Businesses need to be prepared to provide their income and expenses from the previous fiscal year when they do their taxes. Paid invoices act like receipts, making filing for taxes much less complicated.

In fact, the IRS recommends keeping documents like invoices, sales receipts, and paid bills since they support the entries in your books for a minimum of 3 years. Keeping a record of each invoice date and amount allows you to complete your business tax return with little to no issue.

#4: Legal protection

Invoices are legitimate documents that can protect small businesses against missed payments for services rendered. They provide all the information you need to prove what you are owed, which can help if you need legal help to collect payments.

#5: Business analytics

Looking back on previous invoices helps businesses analyze and determine customer buying patterns and preferences, making it easier to identify the most popular products, peak buying periods, and other trends.

With this information, businesses can choose budgeting strategies that work best for them and market appropriately throughout the following year.