Is an invoice a legal document?
How to make an invoice legally binding
When completing business transactions and dealing with invoices, there may be confusion on the exact definition of an invoice and whether or not invoices count as a legal contract.
In simple terms: an invoice is not a legal contract, and in this article, we will explore the differences between the two types of documents.
What Defines an Invoice?
An invoice is a professional document that requests payment from your customers in exchange for your products or services.
An invoice will contain a detailed description of the products and services provided, the customer’s purchase order and specifications, payment terms and dates, and the business’s name and relevant information. Invoice numbers should only be used once.
Learn more about what an invoice contains with our article what makes a good invoice.
An invoice is also the basis of invoice factoring, a simple process that involves selling your invoices to a factoring company like Bankers Factoring for an immediate cash advance on your invoices. More on the benefits of selling your invoices can be found later in this article.
What Defines a Contract?
A contract is a legally binding agreement that outlines working agreements between the service provider and the receiver of the service or the customer. The intention of contracts is to protect both the provider and the client alike. They ensure that both parties are clear on the expectations at hand and what is to be delivered.
For a contract to be legally considered valid, the U.S. Small Business Administration (SBA) states that two main conditions must be met. These legal requirement elements are:
- All parties must agree to an offer that is made by one party and accepted by the other party involved.
- Something of value must be exchanged for something else of value. For example, this can include cash, goods, or services.
Also, read our comprehensive guide to factoring invoices.
Why is an Invoice Not a Legal Contract?
An invoice is not a contract because it does not show a legal agreement between the two parties involved. Where a contract is a legal agreement that both parties come to agree on, an invoice is simply a payment request from one party to another for the services that have been completed. All of us have received invoices in the mail as a fishing expedition, where the sending party hopes we pay it.
A good invoice should reference the purchase order, vendor agreement, or contract that the terms and conditions of the invoice are based upon. An invoice by itself is not a legal document. Only in combination with other documents like legally binding contracts can an invoice have legal force and become a legally binding document.
An invoice primarily deals with the terms of payment for the goods or services delivered, while a contract primarily deals with the full scope of a legal agreement between two parties on a good or service to be completed.
Large companies and government entities will tell you their requirements and dictate whether you agree to the terms or not reflected in your business invoices. In the old days, customers would sign your invoice or use the store stamp. Those days are long gone with electronic billing and reverse invoicing. Read our government contracting guide for information on doing business with the United States Federal government.
Understand what an invoice factoring company is and how it can help you as a business owner.
How Does Selling Invoices Benefit Cash Flow?
Stuck waiting for your cash on invoices that are on 30-90 day payment terms? By selling your invoices through invoice factoring, you can turn this problem on its head, creating immediate, safe, and reliable working capital.
Once you have delivered your company’s products or services to your customer, you can now sell your fulfilled invoice to us. We will then provide you with an immediate cash advance of up to 80-93%, with the remarkably short turnaround of same-day funding after approval. We will now collect the payment from your customer ourselves, and once the payment is collected, we will issue you the rest of the reserves, minus a small factoring fee.
Learn more about how factoring works.
Invoice Verification with Invoice Factoring
When selling your invoices with invoice factoring, the only invoices that will be dealt with are invoices where the good or service has already been satisfied for the customer. Its all about products delivered or services rendered to create a factorable invoice. This will be verified during the invoice factoring approval process with the invoice factoring verification process.
Learn what your CPA needs to know about invoice factoring.
When you provide us with your honest service to your customer, we will provide in return unlimited working capital and credit protection. The invoice verification process ensures that only legitimate invoices are accepted, so if your invoices have simply been fulfilled for your customer, they can be factored.
Got more questions? Get them answered with our invoice factoring FAQ.
What If My Customers Fail to Pay Their Invoice?
When an invoice is created, and your customer now owes you money that is crucial to your business operations, the last thing you want is to never receive payment. Non-payment from your customers is often a worry that lingers in the back of the mind, and if it is to occur, the loss of cash flow and the creation of bad debt that results from the non-payment can prove to be damaging to your business.
If a federal government entity doesn’t pay you, it is probable that you did not meet all the terms of the purchase order.
Thankfully, when you factor your invoices with Bankers Factoring, we offer you something not many factoring companies do: non-recourse factoring.
Non-Recourse Invoice Factoring
Non-recourse factoring means that if your client becomes unable to pay their invoice, for reasons of bankruptcy, insolvency, or protracted slow pay, Bankers Factoring will cover this risk for you, absorbing the loss, protecting you from bad debt, and keeping your credit score safe.
Learn more about why choose Bankers Factoring to meet your working capital needs.
With the bad debt protection that non-recourse factoring provides, you will no longer need to worry if your customer is going to fail to pay. Leave the headache and stress of the potential of non-payment behind, and feel true security in your invoices.
Delve deeper into non-recourse factoring.
Invoices vs Legal Contracts
Now that you understand the difference between invoices and legal contracts, you are armed with more information and are better able to understand how to look after your company’s financial health.
Don’t hesitate to sell your invoices to Bankers Factoring today, allowing your company’s financial health to blossom even further. With Bankers Factoring, bridge your gaps in cash flow, gain access to immediate working capital, protect your company from bad debt, and receive financial assistance from an award-winning factoring company with over two decades of experience.