To My Dearest Independent Contractor,
I like the work that you do, which is why I engaged you to perform services for me. However, with that engagement comes certain responsibilities on your part, one of which is to send me an Invoice for your services.
What do I mean when I say “Invoice?” Well, here’s one simple dictionary definition of the word:
“Invoice: a list of goods sent or services provided, with a statement of the sum due for these; a bill.”
Did I just point out the obvious? Well, as a professional bookkeeper, I will admit I can be prone to nit-pickiness. But that character flaw aside, here is what a real grownup Invoice should include.
A real invoice contains all of the following elements:
- States “Invoice” or “Bill,” usually at the top of the document
- Invoice number
- Invoice date
- Due Date; may also specify Terms, such as “Due Upon Receipt” or “Net 30”
- Specifies the name and address of the company or person sending the invoice (“From” section) (uh, that’s your name and/or your company name)
- Specifies the name and address of the company or person being invoiced (“Bill To” section) (uh, that’s my name/company name, and address)
- Number of hours you worked x Rate per hour worked, as applicable
- A brief description of the services you provided, and when you provided them
- Any other charges being billed, such as expense reimbursements for mileage, supplies, etc.
- Copies of receipts for expense reimbursement
- Total due, somewhere in a big, bold font
Now that you know what to include on an Invoice, please also do the following:
- Send me your invoice in a timely manner, such as at the end of the month, within days of the start of the new month, or upon completion of specified deliverables. In fact, we have already detailed when you will invoice me in our signed Service Agreement, right?
- Don’t email me something from your time tracking program, or from Excel, which looks like a timesheet. You are an IC, not an Employee. A timesheet-looking document could potentially prompt the IRS to conclude you have been working as an Employee, and then the IRS might go after me for back payroll taxes, fines, penalties and more unpleasantness. Your real invoice actually protects me!
- Send me your invoice as a .pdf, not as a Word document. Don’t you realize I can open or edit your Word doc, and change the contents to whatever I want? Protect yourself, and send a .pdf instead.
- Tell me how I can pay you, such as asking me to send you a check, or providing your PayPal info, or a link to pay by credit/debit card or ACH.
- Don’t be surprised when I send you a 1099 in January of next year if I paid you more than $600 in non-employee compensation this year, and you are not a corporation. And yes, those reimbursed expenses will be included in the 1099 total.
My dear IC, please remember that sending a real invoice marks you as a real professional. If you’re skilled enough to offer services for compensation, you should be able to send a professional invoice for those services.
As small business owners, many of us, and our clients, work with Independent Contractors (ICs). In the United States, there are many rules regarding working with ICs, who is an IC, 1099s for ICs, etc. I have stopped counting the number of times that I have had to advise my clients to reject an IC’s “invoice” and require a real invoice instead. Please feel free to share this post with your clients and their ICs. And don’t even get me started on ICs who don’t know what a W-9 form is, or who resist providing one!
Here is the IRS definition of an Independent Contractor.
Here is the IRS page on “Independent Contractor or Employee?”
Jody Linick is an AIPB Certified Bookkeeper and a QuickBooks® Certified Pro Advisor. Her company, Linick Consulting, specializes in remote bookkeeping services using hosted QuickBooks and QuickBooks Online. You can find her series of Blog posts here.