The Zen of Work: INVOICES

With “Holly” on a mission to take control of her work situation – aiming to instil a feeling of Zen in her workspace – she has come to us seeking answers.

And we are happy to oblige Holly. As always.

Holly has made a promise to herself to get things well and truly up and running in the next coming months – determined to see her law firm soar in 2023.

In an effort to do just that, Holly has once again, started to focus her attention inward. Looking more closely at how her law firm is operating. Better still – how it should be operating.

And there is a lot to take in where the optimal operating of a law firm is concerned.

Take invoices as an example.

As a single practitioner, Holly really needs to start understanding the nitty gritty of things – so she best get her ducks in a row. This is true whether she is going to confidently run her own practice or when (confidently) advising her clients.  

So, let’s chat about all things invoice relatedand put Holly’s mind at ease.

Let’s start with the basics – what are invoices?

If we are honest, no one starts a business with the sole aim of providing free services or just “for the heck of it” (unless of course you are a pro bono organisation, charity or trustafarian ).

A business is just that – a business (this includes law firms) and to keep everything afloat, its money, its earnings are a business’s lifeblood.  There is no for-profit business on earth that can survive without an income.

So, it stands to reason that being paid for the work that has been done is paramount and to do that you – naturally – need to issue an invoice.

Being paid on time requires ensuring that your invoicing is up to scratch in order to avoid uncomfortable cash flow scenarios.  

It’s therefore important to include all relevant information on your invoice. If your invoice is unclear or in any way confusing, your client’s will delay payment. And that’s not the aim of this game. Making mistakes – even if they are small – is also a big no-no for more than one reason –

1. You don’t want clients to stall their payments because they are unsure of what they are paying or don’t have enough information to pay what they owe you;
2. It leaves a bad impression – if a business cannot be bothered to ensure that their own invoices are correct, what does that say about the work they are producing?  

So, getting the invoice aspect of any business right is vital.

What is the difference between tax invoices and ordinary invoices?

When we talk about a tax invoice, Value Added Tax (VAT) comes into play.

According to SARS –

“South Africa operates a VAT system whereby businesses (vendors) are allowed to deduct the VAT incurred on business expenses (input tax) from the VAT collected on the supplies made by the business (output tax). The most important document in such a system is the tax invoice. Without a proper tax invoice, a business cannot deduct input tax on business expenses.”

Which means, quite simply, that a business that is registered for VAT i.e. is a VAT vendor, will issue tax invoices for payments by their clients, whereas a business that is not registered for VAT will simply issue a standard invoice.

A business that is registered for VAT is required by the Value Added Tax Act 89 of 1991 (VAT Act) to keep a copy (digital or paper) of all invoices issued, including ones issued in error, or ones that were cancelled.

What about a pro-forma invoice?

Most small business owners will understand the process involved in onboarding a client – this goes for law firms too – it involves (amongst a few other things) –

1. Negotiating terms of the relationship, and
2. Agreeing on the cost for the services being offered.

Once this is all done and dusted, you need to put the agreed terms of your relationship into an agreement or SLA (as many people know) where all the finer details are etched out. In addition, as is often the case, and in order to ensure that everyone is on the same page – a pro forma invoice is issued. Think of the pro-forma as a “precursor” to the official tax invoice.

The advantage of a pro-forma invoice is that it lets your clients know – way ahead of time – not only what services you will be undertaking for them but once those services have been completed, what they can expect to pay for such services. It’s kind of like a “FYI” before a client is faced with paying a  (relatively) large sum of money.

Pro-forma’s also ensure that throughout the process, everyone is kept on the same page, that there is not any confusion or misunderstandings.

The specifics as set out by the VAT Act and SARS

The VAT Act sets out quite clearly the following “must-haves” when it comes to tax invoices –

1. A tax invoice must be issued within 21 days from the time the service was supplied, or supply was made;
2. A tax invoice must set out specific details relating to the work carried out by the business issuing the tax invoice as well as all details of the parties to the transaction.

SARS recognises two types of invoices –

1. a full tax invoice when the amount is more than R5 000 (referred to as consideration for the supply); and
2. an abridged tax invoice when the consideration for the supply is R 5 000 or less than R5 000. If the consideration for the supply is R50 or less, a tax invoice is not required. However, a document such as a till slip or sales docket indicating the VAT charged by the supplier will be required to verify the input tax deducted.  

“As from 8 January 2016, the following information must be reflected on a tax invoice for it to be considered valid: 

1. Contains the words “Tax Invoice”, “VAT Invoice” or “Invoice”;
2. Name, address, and VAT registration number of the supplier;
3. Name, address and where the recipient is a vendor, the recipient’s VAT registration number;
4. Serial number and date of issue of invoice;
5. Accurate description of goods and /or services (indicating where applicable that the goods are second hand goods);
6. Quantity or volume of goods or services supplied, and
7. Value of the supply, the amount of tax charged and the consideration of the supply (value and the tax).” (SARS).

You can ensure that your tax invoice meets the SARS requirements by referring to the checklist developed by SARS.

Holly is also reminded of the fact that she is able to automate her invoices with AJS’ full-stack legal accounting and practice management software. There are so many easy options that can assist Holly with automating her invoices – taking the complexity out of the situation altogether.

And that is invoicing in a nutshell. One more tick on Holly’s to-do list in optimising her practice.

There are many attorneys who have the software packages in place but are just not sure how to fully use them, what everything does and how they can optimise their practice to ensure that it is performing with accuracy and reliability.

But, with the help of AJS, your practice (regardless of its size) can (and will) succeed.

We will continue going through tips, answering your FAQ’s, and providing you with information that will better equip the everyday user of legal tech, like you and like Holly, to achieve a state of Work Zen.

It’s all easy. If you know how… Just ask us.