What is an Invoice Number? [Complete Guide with Best Practices]

Just like the page numbers of a book helps you keep track of them, invoice numbers simplify your payment tracking process and help you stay organized. In short, your business needs a well-organized invoice management system.

But you might be wondering how. So in this guide, you will learn what is an invoice number and the best methods with examples for assigning the first invoice number in your invoice.

Understanding Invoice Numbers

Before getting started with anything too technical let’s quickly understand the definition and core concepts of invoice numbers.

Definition and basic concepts

An invoice number is a unique identifier that is assigned to invoices and is usually a combination of numbers, letters, and symbols. The invoice number is primarily used to keep track of payments. 

Moreover, an invoice number (also known as an invoice reference number) is assigned sequentially to each invoice to track and identify the transactions easily. It is also assigned to your invoice to help you avoid duplicate payments.

Generally, a unique invoice ID appears on the top of the invoice, making it easy to manage for both – the recipient of the invoice and the business providing it.

Components of an invoice number

An invoice number is composed of the following components:

• Prefix or Code: Customer-specific codes or prefixes such as INV or CUST allow businesses to organize invoices according to type or client. This is an important practice as it helps identify specific customer accounts quickly.
• Sequential numbering: This is yet another crucial component of an invoice as it features numbers organized in chronological order that helps in tracking the issued application.
• Date or year code: This component helps to categorize the invoice according to the year it was created. By simply adding “2024” or “23” at the end or beginning of the invoice number does the job.
• Client or project code: This kind of code usually helps businesses with multiple projects or clients as it enables them to manage invoices without any confusion.
• Special characters or separators: Using dashes and slashes while writing an invoice number improves readability and organization.

The Importance of Invoice Numbers

A unique invoice number helps you in many ways, such as:

• Easily track payments
  

  Invoice numbers help you keep track of paid and unpaid jobs for your new and old customers.

  Using a logical invoice number system, you can easily deal with the customers’ invoice issues even if they purchased from you several months ago.

  Once your customer pays the total amount due, you must document the invoice numbers as paid. So, it becomes easy for you to track payments.

  Otherwise, tracking it down can become a real headache and time-consuming for both the buyer and seller.

• Avoid duplicate payments

  If you bill your clients twice or let’s say incorrectly, there are chances of you facing big losses in your business in terms of reputation, time, and money.

  However, an invoice number keeps track of your original invoices and helps you avoid duplication.

• Provide transparency and professionalism

  An invoice with an invoice ID shows professionalism, and your clients are more likely to take your business seriously. It subtly reinforces the fact that you like to stay organized.

• Properly document income for taxes

  Assigning invoice numbers helps tax officers review invoices against the business expenses and sales easily.

  Invoice numbers follow the sequential number methodology, which helps you show the total number of invoices you have sent to your customers at a specific time.

  This is especially useful, to your accountant or when you are using accounting software, for taxes and accounting tracking purposes.

  You will know exactly how many jobs you did and how much they were for. Thus, it is essential for payment tracking purposes.

• Manage your invoices smoothly

  Without invoice numbers, it’s hard to find an invoice from multiple invoices when you need them. So, you need to organize invoices correctly.

For instance, let’s say you need to confirm a payment, answer a question from a client, or send them to your accountant. Using invoice numbers is a simple way to search through and find a particular invoice, regardless of the job, the customer’s name, or the cost of the job.

By including a unique bill number for each of your digital or paper invoices, it’s easy to find the information you’re looking for in your records.

Best Methods for Creating Invoice Numbers

Before we start understanding the steps to generate an invoice number, note that it’s not mandatory to just stick to the methods described here. Instead, it entirely depends on you and how you want to keep your invoice numbers.

1. Sequential numbering system

This method allows you to assign invoice numbers like 1, 2, or 3—or even 00001, 00002—to every new invoice you create.

The most common sequential invoice numbering approach is nine zeros followed by a 1. It means that you can start with your first invoice number as 0000000001.

Moreover, you can also make a combination of letters and numbers (alphanumeric) like INV/01, INV/02, INV/03, and so on.

This method is the easiest to execute. All you need to do is to keep increasing the number (by one) with each invoice without any gaps.

To make this automatic, you can use invoicing software which assigns an invoice number to each invoice you create.

2. Chronological ordering

One of the best ways to create a longer and more detailed invoice number is by mentioning the invoice date. This method is known as the chronological method.

For example, let’s say your first invoice number for the invoice created on January 20th, 2021, would look like this:

• Invoice number example: 20210120-001
• Invoice number format: YYYYMMDD-001

There are two main sections:

• The first one is the date on which the invoice is created.
• Second is the order amount which increases with every new purchase.

Apart from this invoice number format, there are other formats that you can use in your invoice number, like:

• DDMMYYYY
• MMDDYYYY

3. Customer-based numbering

The custom invoice number series begins with the customer name, and the invoice date (an optional one), and finally ends with a sequence number.

Note: The invoice number sequence always comes at the end of every invoice numbering system.

Using the customer invoice sequencing method, you can easily keep track of numbering. This effective invoice numbering system further helps you get rid of duplicate payments.

For example, you have an invoice for client number 4567 with an invoice date of August 15th, 2021. The invoice number would like: 

• Invoice no: 4567-001

or

• Invoice no: 4567-20200815-001 (with the invoice date in the middle)

4. Project-based system

The most widely used invoice sequencing method is project-based. As the name suggests, you can easily reference your invoices using the project number.

This method is an ideal option for new businesses that regularly take on multiple projects. Moreover, many construction companies use the project number to identify their clients, and it is the best option for them to use this method.

There are two main organizational ways to use this method:

• Project number – Customer number – Sequence number
• Customer number – Project number – Sequence number

For example, if the project number is SOTS104 and the client number is 5278, the assigned invoice number would be:

• Invoice number: SOTS104-5278-01
  or
• Invoice number: 5278-SOTS104-01

These are some of the standard methods by which you can number your invoices. Do you still have any questions related to invoice numbers?

Conclusion

The primary purpose of invoice numbers is to help differentiate and track payments.

For small business owners, generating numbered invoices is very simple, as you can opt for any of the methods like sequential, chronological, customer number, and project-based.

However, you also need to overcome many invoice sequencing errors, as they may lead to payment duplication.

The best option to avoid such complications is to adopt online invoicing software like InvoiceOwl and use reliable accounting software. It allows you to create invoices using a free invoice template and send invoices to your clients easily. You just have to mention your client’s company details and let our software handle it. The software itself will automatically create an invoice number.

Sign up to InvoiceOwl NOW and know how it helps your business in different ways.