Working as an independent contractor has numerous benefits, such as working flexible hours, improving work-life balance, and following one’s passion. Having the control to work with clients of your choosing makes the self-employed working experience much better, but it also means following the legal proceedings for these professional transactions.
Invoicing clients for performed services is one of the main aspects of working as an independent contractor. Each independent contractor may have slightly different ways of billing clients for their services. Yet, there are standard invoicing processes that all independent contractors should follow in order to uphold professionalism and abide by tax requirements.
In this guide, we’ll go over the best ways to create and send an independent contractor invoice and common invoicing mistakes to avoid. This way, you can do what you love with peace of mind knowing that you’re following the best practices.
How To Invoice as a Contractor
An invoice is a billing request document that individuals send to those for whom they have performed billable services. When invoicing clients as independent contractors, there is no one right way to get it done. The way independent contractors choose to invoice clients may depend on varying factors such as:
- The contractor’s preferred method of payment
- The client’s preferred method of payment
- The type of employment, such as the 1099 Employment
- The client’s payroll service and software
- Whether services are one-time or recurring
While a one-size-fits-all invoicing procedure would be ideal, it’s apparent that the numerous lines of contractor work, payment preferences, and other factors make a universal template difficult. Thus, when planning your invoicing methods, you must remain flexible to cater to clients and tailor invoices to the different services you provide. Some contractors even offer multiple payment methods to make the process easier for the client.
Despite there being no universal independent contractor invoice requirements, every contractor should do the following to ensure their invoices are up to standard:
- Maintain accurate time tracking for hourly services.
- Remain organized regarding documents, records, contracts, and sending invoices.
- Keep your invoices consistent and on time every time.
- File all of your invoices to have on hand for reporting taxes.
- Fill out IRS Form 1099-NEC for each client when services total $600 or more in a year (the client must provide this form).
When invoicing as an independent contractor, your invoices must be accurate and organized to receive the correct payments and pay the proper taxes. Additionally, contractors must understand employment classification guidelines when working with and billing others as self-employed persons.
Misclassification occurs when independent contractors are classified as employees and vice versa. While misclassification liability falls entirely on the employer, you will want to ensure you are getting paid right for your valuable services. Hence, there are no hiccups when tax season rolls around.
To ensure you’re classified correctly as a contractor, make sure you and your client follow these steps:
- As mentioned above, have clients provide IRS Form 1099-NEC when services total $600 or more in a year.
- Provide Form W-9 to clients with important tax information.
- Agree on a contract that contains language of the nature of one’s employment and the services to be rendered.
If you perform regular services for a client under a contractual agreement, you may even be on that client or company’s payroll. This work arrangement may or may not require you to send regular invoices, so make sure your compensation process is straightforward. For those who need to send periodic invoices, the client may request a type of invoice or payment method. If not, then the invoicing process and setting the bar for professionalism are up to you. To make invoices for independent contractors as professional and efficient as possible, let’s review what to include in your invoice document.
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What To Include in the Invoice
While all invoices may look slightly different, there are some pieces of information that all independent contractor invoices should include. Doing so helps ensure you are paid accurately, avoid legal issues, and maintain a professional image.
Standard independent contractor invoices should include the following:
- Title of the document. The first part of your invoice your client sees is the document name, so make sure it’s correctly labeled as an invoice! The title of your document might simply be “Invoice,” but it can also be more detailed such as “Invoice – November 2022 Contractor Name.” The document's name should be listed at the top of the page.
- Your business logo. If you have a logo for your contractor business, you should certainly include it on your invoice. This adds a touch of professionalism and makes it much clearer who is sending the invoice.
- Your business information. One of the first pieces of information on your invoice should be your personal / business information. This is necessary for the client’s record-keeping and payment purposes.
- Client’s business/contact information. The independent contractor should also include the client’s business information on the invoice. This helps to legitimize the document as a bill that the client is obligated to pay.
- Date of the invoice. The invoice date is also necessary to include to legitimize your document. Not only is it needed for record-keeping purposes, but it acts as proof of billing if the client fails to make your payment(s).
- Invoice number. An invoice number such as 001 is essential to maintain organized records, which is necessary for accurate tax reporting.
- List of services/hours. Your invoice should include an itemized list of the services you are charging. This may look like individual tasks completed or the number of hours worked. Next to the service name(s) or hour(s) should be both the date(s) completed and the individual price(s)/wage.
- Your invoice should include the total amount due. This is often the first information a client looks for, so consider formatting it in boldface. It makes it easy for the client to view the amount due and assess the services provided.
- Payment method and information. Write the payment method the client will use to complete the transaction, which you will likely have agreed upon beforehand. In addition, provide the payment information necessary for your methods, such as your PayPal email or bank account number.
- Due date. Include the date of payment. This provides proof in case of needing to take legal action for unpaid payments. Note that it is an important document that can accompany your legal contract in litigation.
- Late fees policy. If you have a late fee policy, in which interest or additional payments will be charged after the due date, make sure to include it on your document.
- Personal touch. It may be nice to add a personal touch to your invoice. This may be as simple as, “Thank you, and I look forward to working on our next project,” or something else of your choosing.
In addition to including essential information, invoices should look professional and be easy to read. You can utilize an invoice template to have an organized, clean look to your document. Once your invoice is complete, you can simply email it to your client or submit it in their preferred way.
Contractor Invoicing Mistakes To Avoid
When starting out as an independent contractor, it’s common to make mistakes when invoicing. To ensure your invoices are up to standard from the start, do your best to avoid these rookie mistakes:
- Not tracking your hours. Contractors may need to track their hours, services, or tasks performed, leaving them completely unorganized when sending the bill. Stay on top of your bookkeeping and create an organized, efficient system.
- Sending late invoices. Independent contractors and freelancers may learn the importance of sending on-time invoices the hard way by receiving late payments or clients declining to collaborate on future work. Ensure your invoice template(s) are ready before each pay period.
- Inconsistency. Your invoices should be consistent in their formats, payment methods requested, and the methods of sending them to the client.
- Not detailing payment terms. Don’t leave the payment method up to the client unless they have asked you specifically. Some clients may have never paid contractors, so detail the payment process and terms.
Hesitating to follow up on late payments. You might feel awkward sending a bill to someone for the first time, and understandably even more so when you request them a second time. However, feel free to communicate clearly, and professionally regarding receiving your payments. Copy and paste into a follow-up email template to make checking on a late payment easier.
Manage Independent Contractor Invoices With Skuad
While creating and sending invoices as an independent contractor may seem complicated, many self-employed people have successfully mastered this process, and so can you. Skuad helps businesses efficiently manage and pay independent contractor invoices, no matter where the contractor resides. If you want to hire and pay independent contractors, schedule a demo with Skuad today to learn more about our global employment and payroll platform.