You might have noticed that most invoices include sequential numbers typically referred to as a document or invoice number. Invoicing software put numbers on documents by default but are they really necessary? Here’s what you need to know about invoice numbers.

Why you need an invoice number

Generally speaking, putting a sequencing number on invoices helps the supplier, the buyer, and tax authorities to locate invoices related to any given transaction. This is particularly useful when there was more than one transaction with the same client on the same date. Also, it helps tax authorities to cross-check invoices against sale and expense records.

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Numbers need to be present on all VAT invoices according to the invoicing law in the EU which state that in all cases it is required to use a

Unique sequential number identifying the invoice

Depending on the local laws, invoice numbers may or may not be required, however, it still makes sense to include numbers to make sure your books are spot-on and all documents are easy to find.

How to build invoice numbers

Different people like to order their invoices in different ways, and accounting records typically reflect this fact. It’s okay to come up with your own sequencing method as long as it’s consistent and easy to understand for auditors.

There are just two rules to stick to regarding numbering invoices:

  • Use sequential and chronological invoice numbers
  • Make sure each invoice number is unique

How the numbers are structured is mostly up-to-you. You may choose one of the following options:

  • Global sequencing

For companies who don’t issue a lot of invoices, it’ll make sense to stick to a global sequencing format which means that invoice numbers wouldn’t change depending on the client, project, or goods sold. You may include a reference to the month or year of issue as part of the sequencing format.

  • “Per project” or “per client” sequencing

An example would be to number your invoices in the following format ABCD01234, where ABCD represents a client code, followed by the numeric sequence. In this way, you’re keeping invoice number formats separate for different clients.

Instead of including a client code, you may as well include an identifier related to the project, product, or service.

  • Numbers based on the document type

Of course it may happen that you issue many different document types related to your operations. Thus, it may be a good idea to reflect the document type in the numbering system by starting the format with INV or INVOICE for invoices, PROFORMA for pro forma invoices, and so on.

There are plenty of other ways to build a numbering format depending on the local traditions regarding doing business.

To give you an idea of what various invoicing solutions propose, here are three examples of default invoice numbers used in QuickBooks, Xero, and FreeAgent.

QuickBooks – default number: 1001

Xero – default number: INV-0001

FreeAgent – default number: INVOICE 001

Capturing invoice numbers automatically

Invoice numbers are required in order to save invoices related to business expenses in your accounting records. Thus, an invoice data capture solution should be able to catch invoice numbers from OCRed text.

Interestingly, depending on the invoice format, invoice numbers aren’t always labelled as “numbers” due to the fact that the invoice receiver is expected to know which element refers to the document number.

How to set up your invoice numbering format in QuickBooks Online

There are plenty of ways to build an invoice numbering format and it is likely that your cloud accounting system can accommodate to your needs. For example, in QuickBooks Online you are free to select any format you need.

By default, QuickBooks puts numbers on invoices automatically. If you don’t use custom numbers, your very first invoice is likely to be number with INV12345. To set up your own invoice numbers in QuickBooks Online follow these steps:

1. Go to Sales >> New Invoice >> Gear button (top right corner)

or

Go to Dashboard >> Gear Button >> Account and Settings >> Sales

2. Tick “Custom transaction numbers” to change its status to “On”

From now on, a new editable field “Invoice no.” will appear on the invoice form.

When you create a new invoice, QuickBooks will pre-fill this form by adding +1 to the number of the previously issued invoice if it was numerical.
 

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