An invoicing service company is a service provider with whom light entrepreneurs make an agreement on invoicing their customers. For a fee, these companies take care of light entrepreneurs’ statutory obligations regarding taxes and other matters and, when customers pay for the light entrepreneurs’ work, the companies forward the payments to light entrepreneurs as salary.
With some invoicing service companies, you can make a billing agreement, and the company will then pay you the invoiced fees as trade income.
Two ways to use invoicing services
Light entrepreneurs can use invoicing services in two ways:
- An invoicing service company can make a formal employment contract with a light entrepreneur. This makes the light entrepreneur an employee, and the company pays them salary. The light entrepreneur sends their tax card to the company, and the company withholds tax from the pay. The invoicing service company reports the salaries and the tax prepayments to the national incomes register.
- Light entrepreneurs can also make a billing agreement with an invoicing service company. In that case, they are categorised as people occupied in production of income (if they have no Business ID) or as entrepreneurs (if they do have a Business ID), and they or their company are paid trade income. If an entrepreneur is not registered in the prepayment register, they need a tax card to receive trade income. In that case, the invoicing service company deducts the prepayment from the trade income and registers the work in the Incomes Register in the same way as in a formal employment contract (option 1).
Formal employment contract
Most light entrepreneurs follow option 1; they are deemed to have a formal employment contract with an invoicing service company. Even though the invoicing service company pays the income from the invoices to the light entrepreneur as salary, the company is not their employer. In this arrangement, the company does not supervise the light entrepreneur’s work in any way or take any responsibility for the work or its quality.
Only private individuals (workers) who do not own an active company in the same industry as the job about to be invoiced can use invoicing service companies. You cannot use an invoicing service if you have or enter into an employment relationship with the principal.
Price and content of the services
The services provided by different invoicing service companies vary, and so do their prices. For instance, some companies remind principals of unpaid invoices and can forward invoices to a collection agency. Required insurance policies may be included in the service price, or you may have to buy them separately. When you compare the service prices of different companies, you should take note of what services the price includes.
One benefit in the pricing of these companies is that light entrepreneurs do not pay for services they do not use. Invoicing service companies take a share of each sum you invoice, so, if you do not invoice anything, you do not need to pay the invoicing service anything either.
“Registered light entrepreneur”
You can also start an actual, registered company through an invoicing service company. In this case, the invoicing service company will function quite like a bookkeeping company. This kind of light entrepreneurs could be called “registered light entrepreneurs”. Before becoming a “registered light entrepreneur”, you should compare the prices and services of traditional bookkeeping companies and invoicing service companies. You may consider the ease of using the services an asset.