What is a payment reference?

Want your business to appear more professional and be more effective at tracking client projects? Payment references can help.

Learn everything you need to know about what payment references are and how they’re useful to your business, including:

• What a payment reference is
• Why payment references are important 
• Examples of payment references
• How to automate payment references for client accounts

Whether you’re a sole trader or limited company director, find out how payment references can help you run your finances better and help your business appear more professional. Read on to discover how Countingup can help below.

A payment reference is a piece of information that helps people understand payments made into their bank account. They’re more commonly used in business environments to help match specific payments to the projects they were issued for. However, they’re also used by friends and family members sending money as gifts or to help cover bills. 

Payment reference formats can vary depending on who issues them. Typical formats within business environments can include a string of numbers or letters. For example, these can be as simple as ‘000001’ or ‘Client-Name-00010’. However, payment references can also be sentences or informal messages like ‘For repair work 12th June’ or ‘Happy birthday love Gran’.

Therefore, payment references are a key way that people make sense of their accounts.

Payment references allow business owners to verify payments made to their account as having come from a particular client or invoice. For this reason, they’re a crucial element of invoices and money transfers for both businesses and their customers.

Without payment references, many businesses would struggle to accurately and quickly match payments to their outstanding invoices. This is particularly true for high-volume businesses where lots of transfers and transactions occur. 

However, payment references are still useful for all businesses, regardless of revenue size. Payment references are particularly useful where businesses have ongoing relationships with clients where multiple projects are being managed. Using the client’s name isn’t helpful in these contexts as they have other outstanding contracts that a payment could be confused for. 

Because payment references are issued on a per-project basis, they help businesses manage each project uniquely, allowing them to track specific project costs more accurately.

Payment references included on invoices are a standard part of business relationships. They are normally included in the top section (usually on the right-hand side) along with other important information unique to the invoice, such as its due date and the customer’s name or ID number. 

Because the payment reference is the most important piece of information enclosed on the invoice, it is often made more obvious visually. This might be achieved by being set in bold letters or in a larger font size.

Payment references are also sometimes repeated throughout the invoice document in headers or footers. This can occur if a particular order is especially large and the invoice continues for several pages.

If your business is in property (either as a landlord or letting agency), payment references can help your business have more accurate and manageable financial accounts.

This can come in the form of requiring tenants to include a unique reference such as their contract number or property address when paying. This can help you navigate rent payments and expenses for each associated tenant more easily. If you’d like to learn more about accounting tips within the property industry, read our article Managing your accounts as a private landlord.

HMRC has several different payment references for businesses, depending on what specific tax or cost is being paid to them. Common examples include your business’ Unique Taxpayer Reference, VAT registration number or PAYE employer number (if you have any staff). 

0nce is unique to your business, they’re all different numbers and formats:

• Unique Taxpayer references are ten digits long and can sometimes include the letter ‘K’.
• UK VAT registration numbers are nine letters long and start with ‘GB’, while EU VAT formats can range from two to twelve characters.
• PAYE employer numbers are 13 characters long.

Therefore, when interacting with HMRC, carefully track which reference you use for any payments made to them. 

Generating payment references and sending invoices to clients doesn’t have to be the chore it once was for small business owners. Save time on your financial admin and bookkeeping with Countingup and spend more time doing what you love instead.

Countingup is the business current account and accounting software in one app. With all your financial information in one place, you can automate key financial admin and save hours of your valuable time.

The Countingup app comes with automated invoicing tools that can provide your customers with straightforward payment instructions, so you can get paid quicker. Countingup also matches invoice payments and notifies you when you’ve been paid. With this crucial financial insight, you’ll develop a deeper understanding of how your business performs while you trade. 

Countingup also has key innovative features for new business owners like expense reminders, receipt capture tool and tax estimations. Together, these features can help you make sure your accounts are always up to date, accurate, and completely tax compliant. 

Find out more here and sign up today for free.