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What is an Invoice and is it a Legal Document?

Posted on September 18, 2013 in Business Tips

Accountants and lawyers love comprehensive discussions of invoices and purchase orders because both documents include numbers and legal implications. But there are a lot of misconceptions about invoices that business owners need to understand before they start pointing to their invoices as legal documents. The question as to whether or not an invoice is a legal document is one that always has people on several sides, but there is really only one right answer.

To start this discussion off, let us establish exactly what an invoice really is. An invoice is a list of products or services provided by a vendor to a customer. The invoice will also show other elements of the transaction such as sales tax, shipping, handling and other fees. At the end of the invoice will be a complete total of the costs incurred by the client for the products or services that were purchased.

Most companies also have a lot of legal lingo on their invoices that outlines the company's collection policies as well as the phone numbers that a client can use to contact the company to make payment arrangements. The invoice will also have all of the acceptable payment options outlined that the customer has to choose from.

If a customer has utilized a purchase order to make a transaction, then the invoice will also bear that purchase order number. Most invoices come with their own individual identification number and all invoices are dated. The key thing to remember is that the date on the invoice is the date that the invoice was generated. It is not always the date of the transaction. That becomes important when it comes to determining when the invoice is actually due for customers with credit terms.

Is an invoice a legal document? In and of itself, an invoice is not a legally binding agreement. If an invoice on its own was a legally binding document, then vendors could create bogus invoices and then force their clients to pay them. If both sides do not agree to the invoice, then it is not legally binding.

The tenuous legal standing of an invoice is the very reason why vendors require signatures from the client, or some other binding form of acceptance, before sending out a product. The accountability works both ways for an invoice. Customers could order products and then deny that they ever placed the order. For vendors that sell consumables, this practice could get extremely expensive.

Once both sides agree to an invoice, it then becomes a legal debt and an agreement. The customer is not bound to pay the invoice until the vendor has satisfied all elements of the invoice. In most cases, the customer will outline their terms of the transaction on a purchase order.

Residential clients tend to be the ones who are affected most by the vague wording on invoices. Before agreeing to an invoice, a residential customer should insist that all of the terms of the transaction be spelled out on the invoice. Once both sides agree to the invoice, it becomes a binding contract. That means that the customer must pay the invoice, but only after the vendor has satisfied all of terms spelled out on the invoice.

This is how residential customers can protect themselves when dealing with contractors who do work on their homes. Make sure everything is spelled out in the invoice before agreeing to it and then you are protected.