An invoice number refers to the reference number of a particular invoice unique to it. Every business must allot a unique number for every invoice raised for easier tracing. Under the GST law, it is compulsory to note the tax invoice number. Further, the invoice number is critical for tax compliance accounting and payment tracking purposes.
Importance of Invoice Number explained
Invoices or bills are the most crucial documents for any size business. It is important to track invoices sent out and received for recording sales and purchases in the books of accounts. Therefore, assigning unique invoice numbers for every invoice is crucial for easy tracking.
The CGST Rule 46 contains the invoice’s particulars that apply to any GST registered persons. As per this rule, the tax invoice raised must have a consecutively serial numbered tax invoice number which can be a maximum of 16 characters. Each tax invoice will have a unique reference number for the financial year. Hence, the bill or invoice without an invoice number is considered a criminal record and can attract penalties.
Moreover, the invoice number is a compulsory field in the following compliance:
- To create an e-invoice
- To create an e-way bill
- To create a shipping bill/bill of export
Further, the invoice numbers aid as a reference document for tracking the payments and receipts of a business.
Should invoices have an invoice number?
Invoices must consist of an invoice number. If it’s absent, customers and clients may reject those invoices, as it becomes difficult for them to record and track vendor payments. Also, if vendors lose the tracking, they have to spend additional time reissuing a new invoice.
The invoice number for invoices are serially or consecutively numbered for the business or GSTIN as a whole and not client-wise or customer-wise. It is the most common mistake that new businesses or freelancers may commit.
Steps to assign invoice numbers
Invoice numbers must be assigned sequentially. That means the number of each new invoice should increase. An invoice number sequence should never involve any duplications or skips.
It is not good practice to allot simple invoice numbers such as ‘1’, ‘2’, ‘3’, etc. Such activity can confuse the user when invoice numbers reach double or triple figures. Businesses that have newly started may have only a handful of invoices. Yet, it is important to project the future growth of the business while choosing an effective invoice numbering system or invoice software for managing bills.
Adding the month and the year when the invoice is an effective option to generate a longer and more specific invoice number. For instance, within an invoice sequence related to the year, the first invoice in 2021 could be ‘210001’. The subsequent invoices would be ‘210002’, ‘210003’, and so on.
At the beginning of the next financial year, one must reset the invoice numbers, i.e., the first invoice reference number of 2022 would be ‘220001’. One can also mention the invoice number giving the month and year, such as INV/2021-22/01/09, where 2021-22 is the year, 01 is the month, and 09 is the serial number.
This annual reset allows one to quickly check which year an invoice is raised and operates on the consecutive numbering requirement. Further, a business can take the name of a branch or business unit or particular project to refer to in the invoice numbers.
Invoice Numbers with Invoicing software
A modern-day invoicing software has multiple invoice templates to select your own custom invoice number series according to business needs and industry standards. The invoice number automatically gets updated to a sequential number whenever you raise a new quote or invoice. Further, you don’t have to reset the invoice number series every financial year manually. It happens automatically as soon as the financial year ends. It will avoid auditing hassles and ensure accuracy.
