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 includes a detailed description of products/services, customer’s purchase order/specifications, payment terms/dates, and the business’s 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 between a service provider and a customer that outlines working agreements. 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. A contract is a legal agreement between two parties, while an invoice is a payment request for completed services. Invoices are often sent in the mail with the hope that the recipient will pay.
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.
The terms of payment for the goods or services delivered are primarily dealt with in an invoice, while a contract primarily deals with the full scope of a legal agreement between two parties regarding 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 using invoice factoring to sell your invoices, the factoring company will only deal with invoices for which the good or service has already satisfied the customer. 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.
By offering your honest service to customers, you can gain access to unlimited working capital and credit protection. Our invoice verification process ensures that we only accept legitimate invoices, enabling us to factor invoices fulfilled by your customers.
Got more questions? Get them answered with our invoice factoring FAQ.
What If My Customers Fail to Pay Their Invoice?
When your business creates an invoice, it is crucial to ensure getting paid. Non-payment from customers can be damaging, causing a loss of cash flow and bad debt.
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 if your client can’t pay their invoice due to bankruptcy, insolvency, or slow payment, Bankers Factoring will cover this risk, protecting you from bad debt and preserving your credit score.
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
Understanding the difference between invoices and legal contracts equips you with more information and enhances your ability to manage 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 cash flow gaps, access working capital instantly, protect your company from bad debt, and get financial assistance from an experienced factoring company.