Invoicing in Canada and Best Practices

Invoicing is a key part of any business’s financial management. In Canada, following invoicing best practices means being professional, streamlining cash flow, and being compliant with federal and provincial tax laws. This guide will show you how to create professional invoices, set payment terms, and follow up on overdue accounts while being Canadian.

1. What is Professional Invoicing and Why is it Important

A professional invoice is more than just a bill – it’s a reflection of your business. In Canada, accurate invoicing is also legally important as invoices are often used as evidence in case of disputes or audits by the CRA. So it’s important to have an invoicing process that is clear and compliant.

Benefits of Professional Invoicing

• Faster Cash Flow: Timely and accurate invoices reduce payment delays.
• Better Client Relations: Clear terms and detailed breakdowns reduce disputes.
• Regulatory Compliance: Proper documentation means CRA and GST/HST compliance.

2. What to Include in a Professional Invoice in Canada

A compliant and professional invoice means including all the necessary details. The CRA has specific requirements for invoices for tax purposes. Here’s what every invoice in Canada should have:

Required Fields:

1. Your Business:
   • Business name
   • Address and contact info
   • GST/HST number (if applicable)
2. Client:
   • Full name or business name
   • Address and contact info
3. Invoice:
   • Invoice number
   • Date
   • Clear due date
4. Itemized Description:
   • List of products or services
   • Quantity, price, and total per item
   • Taxes (e.g. GST/HST, PST, or QST)
5. Payment Terms:
   • Payment methods (e.g. bank transfer, cheque, credit card)
   • Late payment penalties
6. Total Amount Due:
   • Subtotal
   • Tax
   • Grand total

3. Payment Terms and Conditions

Clear payment terms are key to avoiding misunderstandings and getting paid on time. Your terms should be transparent and realistic considering your cash flow needs and your client’s payment cycle.

Payment Terms in Canada

• Net 30: Payment due 30 days after invoice date.
• Net 15: Payment due 15 days after invoice date.
• Immediate Payment: Payment required upon receipt of invoice.

Payment Terms Tips

• Be Specific: State the due date (e.g. “Payment due by December 15, 2024”).
• Late Fees: Specify a percentage or flat fee for late payments, e.g. 1.5% interest per month.
• Discounts: Offer early payment discounts (e.g. “2% discount for payment within 10 days”).

Legal Considerations

Under Canadian contract law, the payment terms in an invoice are binding if the client has agreed to them in advance. Make sure all terms are communicated upfront and in writing.

4. Canadian Tax Requirements

When invoicing in Canada, businesses must comply with GST, HST, Provincial Sales Tax (PST) and Quebec Sales Tax (QST) rules depending on their location and the type of transaction.

Tax Specifics:

1. GST/HST:
   • Applies to most goods and services.
   • GST rate: 5%; HST rates vary by province.
2. PST:
   • Applies in provinces like BC and Saskatchewan.
   • Rates vary by province.
3. QST:
   • Applies in Quebec.
   • Current rate: 9.975%.

Tax Compliance

• Register for a GST/HST account if your annual revenue is over $30,000.
• Indicate if taxes are included in the price or added separately.
• Show tax breakdown on the invoice.

5. Chasing Overdue Accounts

Even with professional and detailed invoices, businesses often get paid late. Having a system to follow up on overdue accounts will protect your cash flow and client relationships.

Follow Up

1. Send a reminder:
   • One week after the due date, send a polite email.
   • Attach the original invoice and restate payment terms.
2. Phone Call:
   • If no response to an email, call the client personally.
   • Confirm they received the invoice and ask about payment status.
3. Final Notice:
   • 30 days after non-payment, send a final notice.
   • Mention late fees or collection agency.
4. Legal Action:
   • For persistent non-payment, go to a collections agency or small claims court.

Be Professional

While you need to stand up for yourself, being professional during follow up is key to long term relationships.

6. Using Technology for Invoicing

Invoicing software makes it easy, accurate, and compliant with Canadian regulations. Popular options are QuickBooks, FreshBooks, and Wave.

Features to Look For

• Auto tax calculation
• Customizable templates
• Recurring invoicing
• Payment tracking and reminders

Automation Benefits

• Saves time and reduces errors
• Integrates with accounting systems
• Real-time accounts receivable insights

7. Invoicing Mistakes to Avoid

Even small invoicing mistakes can cause delays, disputes, or compliance issues. Watch out for these:

Mistakes to Avoid

• Missing Info: Leaving out critical info like GST number or invoice date.
• Vague Descriptions: Providing unclear or incomplete product or service descriptions.
• Tax Errors: Applying wrong GST/HST rates or not separating taxes from subtotal.
• Unclear Terms: Not specifying due dates, payment methods, or late fees.

How to Avoid Mistakes

• Review invoices before sending.
• Use invoicing software with built in error detection.
• Stay up to date on Canadian tax laws.

8. Invoicing for Canadian Clients

Customization shows you care and builds trust. Customize your invoices for Canadian clients while following local standards.

Customization Ideas

• Bilingual content for Quebec clients.
• Provincial tax rates.
• Use Canadian dollar pricing and specify currency if international.

9. Review and Refine Your Invoicing

Invoicing is an ongoing process that can