This topic is a linked part of a larger work: “Edgeryders OÜ Company Manual”
This process is about issuing invoices by Edgeryders OÜ to its clients. If you want to send an invoice to Edgeryders OÜ to be paid by us, go here instead: Invoice payment process.
For the purposes of this manual, an invoice is a document that accounts for revenue received by Edgeryders, against the provision of goods and services (in our case it will always be services). There are two cases:
A client has purchased goods or services from Edgeryders. Example: a European capital of culture buys training for their community managers.
A funder issues a grant to a project that Edgeryders delivers. Example: the European Commission pays for research projects.
In both cases we issue similar documents, using the
Invoice tab of FreeAgent. In accounting terms, however, they are different: Case 1 requires proper invoices, and the associated revenue falls under
Sales. Case 2 produces documents we will call “pseudo-invoices”, and the associated revenue falls under
Grant income. Please be clear about which case you are dealing with before you start.
There is one more thing you must know before you start: which project the invoice is a part of. Projects are objects in the FreeAgent Database. They correspond more or less to what we in Egderyders would call a project in natural language. Their purpose is to enable analytical accounting: assessing the profitability of each project separately.
Before creating your invoice or pseudo-invoice, make sure a project exists to assign it to. From the FreeAgent main menu, choose
Work => Projects. If no appropriate project exists, create one by clicking on the
Add new project button.
Projects have a title, a client (called “Contact”), a status (the default is “Active”), and, importantly, a currency. You will not be able to associate an invoice to a project unless it is in the same currency as that of the project. If you are dealing with a new client, you may have to add that client as a contact in FreeAgent. To do this, select from the main menu
Contacts => Add new contact. Fill in the information, which is straightforward. In
Charge VAT in the
Invoicing options section, choose:
- For commercial clients:
Only if contact is also based in Estonia.
- For funders:
3. Writing the invoice
3.1. Issuing an invoice against a sale
This process does not apply if the money to account for is not a sale but a grant. The nature of the money should be apparent from the contract we have. Money from international NGOs such as UNDP, World Bank etc. is often grant money. To account for such money, see “3.2. Issuing a pseudo-invoice against a grant” below.
Get the client’s EU VAT ID. This is very important for clients registered inside the EU (more specifically, the EEA, which is the European Economic Area). Clients registered elsewhere usually do not have a EU VAT ID, however some do now as the EU forces them to become VAT tax residents in the EU if they export to the EU beyond certain thresholds. If your colleagues have been diligent, this information is already in FreeAgent: look at the project’s page, navigate to the project’s contact page, and verify that the information is there.
Open FreeAgent. Then choose
Work → Invoicing → Add new invoice.
Fill the form. Don’t forget to assign the invoice to a project. If this is the first invoice for a brand new project you might have to create one (
Work => projects). Click on
Create invoice. If the client is not already recorded in FreeAgent, it will not show up in the drop-down menu under
Contact. In that case, by implication, there is also no project to associate the invoice to. In this case please add one: see the preceding section for information on how to do it.
In the second screen create invoicing items, and make sure that the VAT rate (which relates to Estonian VAT) is chosen appropriately. The appropriate VAT rate is:
- 20% if the client is incorporated in Estonia
- 20% if the client has no EU VAT ID
(this section is pending clarification; it would require to charge VAT when exporting services from the EU, which makes no sense because international trade in services is generally not liable to VAT)
- 0% in all other cases
For the special case where the client has no EU VAT ID, either as an institutional client or a business, also check if their country of residence levies VAT on e-services by non-resident providers selling to consumers. If so, you have to somehow include that into the invoice and forward it to the government of that country.
Mark as sent. This tells FreeAgent that your invoice is no longer a draft, and should go into Profit and loss. At this point you can download the invoice and send it to the client.
3.2. Issuing a pseudo-invoice against a grant
The procedure is the same as above. VAT does not apply to grants, and grant makers normally have their own language to justify it (EU treaties, UN treaties etc.). Grant makers typically do not ask for our pseudo invoices: we generate them for our own internal accounting.
This also means that, if you are dealing with a new grant maker and are creating their contact information, you should set the
Charge VAT field to
4. Accounting for the invoice
“Proper” invoices against a sale do not require any additional accounting moves. Pseudo-invoices against grants do. Refer to the manual section “Bookkeeping in Edgeryders → § 4. Accounting for grant income”.