Invoicing is one of the fundamental administrative tasks for contractors operating through a limited company. Getting your invoices right ensures you are paid on time and maintains a professional relationship with your agency or client.
What to include on your invoice
Every invoice should include your company name, registered address, and company number; a unique invoice number (typically sequential); the invoice date and payment due date; the client or agency name and address; a description of the services provided and the period covered; the number of days worked and your day rate; the subtotal, VAT amount (if VAT registered), and total amount due; your bank details for payment; and your VAT registration number if applicable.
Payment terms
Standard payment terms for contractors are typically 14 or 30 days from invoice date. Some agencies operate on specific payment cycles (e.g. weekly or fortnightly) regardless of invoice terms. Clarify payment terms before starting the contract so there are no surprises. If possible, negotiate shorter payment terms to improve your cash flow.
VAT on invoices
If your company is VAT registered, you must add VAT at 20 percent to your invoices. Show the net amount, the VAT amount, and the gross total separately. If you are on the Flat Rate Scheme, you still charge the full 20 percent VAT on invoices; the Flat Rate calculation only affects what you pay over to HMRC. If you are not VAT registered, do not show any VAT and your invoice total is the net amount.
Chasing late payments
If payment is overdue, send a polite reminder on the day after the due date. Follow up with a phone call if the reminder is not acknowledged within a few days. Most late payments from established agencies are administrative delays rather than deliberate non-payment. Under the Late Payment of Commercial Debts Act, you have the right to charge interest on overdue invoices at 8 percent above the Bank of England base rate, plus a fixed compensation charge. In practice, mentioning this right is usually sufficient to prompt payment.
Keeping records
Maintain copies of all invoices issued and track payment against each one. Your accounting software should handle this automatically if you reconcile your bank feed regularly. Good invoice records are essential for your annual accounts and for demonstrating business-like conduct if your IR35 status is ever questioned.