diff --git a/app/api/dashboard/route.ts b/app/api/dashboard/route.ts
index b5db9be..92b7a3a 100644
--- a/app/api/dashboard/route.ts
+++ b/app/api/dashboard/route.ts
@@ -1,7 +1,7 @@
 import { getServerSession } from 'next-auth';
 import { authOptions } from '@/auth';
 import { prisma } from '@/lib/prisma';
-import type { TimeEntry, Client } from '@prisma/client';
+import type { TimeEntry, Client, Prisma } from '@prisma/client';
 import { validateEnv } from '@/lib/env';
 
 export async function GET() {
@@ -105,6 +105,27 @@ export async function GET() {
         return sum + hours * Number(entry.client.hourlyRate);
       }, 0);
 
+    // Invoice counts: unpaid (not PAID) and overdue (status OVERDUE or dueDate passed and not PAID)
+    const now = new Date();
+    const unpaidCount = await prisma.invoice.count({
+      where: { userId: user.id, NOT: { status: 'PAID' } } as Prisma.InvoiceWhereInput,
+    });
+
+    const overdueCount = await prisma.invoice.count({
+      where: ({
+        userId: user.id,
+        AND: [
+          { NOT: { status: 'PAID' } },
+          {
+            OR: [
+              { status: 'OVERDUE' },
+              { dueDate: { lt: now } },
+            ],
+          },
+        ],
+      } as Prisma.InvoiceWhereInput),
+    });
+
     return Response.json({
       totalEarnings: parseFloat(totalEarnings.toFixed(2)),
       weeklyEarnings: parseFloat(weeklyEarnings.toFixed(2)),
@@ -115,6 +136,8 @@ export async function GET() {
         hours: parseFloat(data.hours.toFixed(2)),
       })),
       recentEntries,
+      unpaidCount,
+      overdueCount,
     });
   } catch (error) {
     console.error('Error fetching dashboard data:', error);
diff --git a/app/api/invoices/[id]/route.ts b/app/api/invoices/[id]/route.ts
index 1a693f0..37fbd84 100644
--- a/app/api/invoices/[id]/route.ts
+++ b/app/api/invoices/[id]/route.ts
@@ -2,6 +2,7 @@ import { getServerSession } from 'next-auth';
 import { authOptions } from '@/auth';
 import { prisma } from '@/lib/prisma';
 import { validateEnv } from '@/lib/env';
+import type { Prisma, InvoiceStatus } from '@prisma/client';
 
 export async function GET(_req: Request, { params }: { params: Promise<{ id: string }> }) {
   validateEnv();
@@ -87,10 +88,20 @@ export async function PATCH(req: Request, { params }: { params: Promise<{ id: st
   } catch {
     return Response.json({ error: 'Invalid JSON body' }, { status: 400 });
   }
-  const { isPaid } = (body ?? {}) as { isPaid?: unknown };
+  const { isPaid, status } = (body ?? {}) as { isPaid?: unknown; status?: unknown };
 
-  if (typeof isPaid !== 'boolean') {
-    return Response.json({ error: 'Missing or invalid isPaid' }, { status: 400 });
+  const allowedStatuses = ['DRAFT', 'SENT', 'PAID', 'OVERDUE'];
+
+  if (typeof isPaid === 'undefined' && typeof status === 'undefined') {
+    return Response.json({ error: 'Missing update fields' }, { status: 400 });
+  }
+
+  if (typeof status !== 'undefined' && typeof status !== 'string') {
+    return Response.json({ error: 'Invalid status' }, { status: 400 });
+  }
+
+  if (typeof status === 'string' && !allowedStatuses.includes(status)) {
+    return Response.json({ error: 'Unknown status' }, { status: 400 });
   }
 
   const user = await prisma.user.findUnique({
@@ -108,10 +119,20 @@ export async function PATCH(req: Request, { params }: { params: Promise<{ id: st
   }
 
   try {
-    const invoice = await prisma.invoice.update({
-      where: { id },
-      data: { isPaid },
-    });
+    const updateData: Prisma.InvoiceUncheckedUpdateInput = {};
+
+    if (typeof isPaid === 'boolean') updateData.isPaid = isPaid;
+    if (typeof status === 'string') updateData.status = status as InvoiceStatus;
+
+    // Keep isPaid in sync if status is set to PAID
+    if (status === 'PAID') updateData.isPaid = true;
+
+    // If marking as not paid, ensure isPaid flag reflects that
+    if (status && status !== 'PAID' && typeof isPaid === 'undefined') {
+      updateData.isPaid = false;
+    }
+
+    const invoice = await prisma.invoice.update({ where: { id }, data: updateData });
 
     return Response.json({ message: 'Invoice updated successfully', invoice });
   } catch (error: unknown) {
diff --git a/app/api/invoices/route.ts b/app/api/invoices/route.ts
index bb6e0c3..ed79f69 100644
--- a/app/api/invoices/route.ts
+++ b/app/api/invoices/route.ts
@@ -29,7 +29,7 @@ export async function GET() {
   const now = new Date();
   const invoicesWithOverdue = invoices.map((inv) => ({
     ...inv,
-    isOverdue: !inv.isPaid && !!inv.dueDate && new Date(inv.dueDate) < now,
+    isOverdue: inv.status !== 'PAID' && !!inv.dueDate && new Date(inv.dueDate) < now,
   }));
 
   return Response.json({ invoices: invoicesWithOverdue });
@@ -123,6 +123,7 @@ export async function POST(req: Request) {
       clientId,
       userId: user.id,
       dueDate: due,
+      status: 'DRAFT',
     };
 
     const invoice = await prisma.invoice.create({
diff --git a/app/dashboard/page.tsx b/app/dashboard/page.tsx
index cff0d33..1ce25e5 100644
--- a/app/dashboard/page.tsx
+++ b/app/dashboard/page.tsx
@@ -19,6 +19,8 @@ interface DashboardData {
     hours: number;
     earnings: number;
   }>;
+  unpaidCount?: number;
+  overdueCount?: number;
 }
 
 export default function DashboardPage() {
@@ -76,6 +78,18 @@ export default function DashboardPage() {
         </div>
       </div>
 
+      <div className="grid grid-cols-1 md:grid-cols-2 gap-6 mb-8">
+        <div className="bg-white rounded-lg shadow-md p-6">
+          <div className="text-slate-600 text-sm font-semibold mb-2">Unpaid Invoices</div>
+          <div className="text-4xl font-bold text-slate-900">{data.unpaidCount ?? 0}</div>
+        </div>
+
+        <div className="bg-white rounded-lg shadow-md p-6">
+          <div className="text-slate-600 text-sm font-semibold mb-2">Overdue Invoices</div>
+          <div className="text-4xl font-bold text-red-600">{data.overdueCount ?? 0}</div>
+        </div>
+      </div>
+
       <div className="grid grid-cols-1 lg:grid-cols-3 gap-8">
         {/* Earnings by Client */}
         <div className="lg:col-span-1">
diff --git a/app/invoices/page.tsx b/app/invoices/page.tsx
index 1126515..46cdc5d 100644
--- a/app/invoices/page.tsx
+++ b/app/invoices/page.tsx
@@ -21,6 +21,7 @@ interface Invoice {
   periodEnd?: string | null;
   client: { name: string };
   isPaid: boolean;
+  status?: string;
   dueDate?: string | null;
   isOverdue?: boolean;
 }
@@ -320,7 +321,21 @@ export default function InvoicesPage() {
                       ${invoice.totalAmount.toFixed(2)}
                     </td>
                     <td className="px-6 py-4 text-center">
-                      {invoice.isOverdue ? 'Overdue' : invoice.isPaid ? 'Paid' : 'Unpaid'}
+                      <div className="inline-flex items-center space-x-2">
+                        <span
+                          className={`px-2 py-1 text-sm rounded-full font-semibold text-white ${
+                            invoice.status === 'PAID'
+                              ? 'bg-green-600'
+                              : invoice.status === 'SENT'
+                              ? 'bg-blue-600'
+                              : invoice.status === 'OVERDUE'
+                              ? 'bg-red-600'
+                              : 'bg-slate-500'
+                          }`}
+                        >
+                          {invoice.status ? invoice.status.toLowerCase() : invoice.isOverdue ? 'overdue' : invoice.isPaid ? 'paid' : 'unpaid'}
+                        </span>
+                      </div>
                     </td>
                     <td className="px-6 py-4 text-right space-x-2">
                       <button
@@ -356,6 +371,36 @@ export default function InvoicesPage() {
                       >
                         {invoice.isPaid ? 'Mark as Unpaid' : 'Mark as Paid'}
                       </button>
+                      <select
+                        value={invoice.status || (invoice.isPaid ? 'PAID' : 'DRAFT')}
+                        onChange={async (e) => {
+                          const newStatus = e.target.value;
+                          try {
+                            const res = await fetch(`/api/invoices/${invoice.id}`, {
+                              method: 'PATCH',
+                              headers: { 'Content-Type': 'application/json' },
+                              body: JSON.stringify({ status: newStatus }),
+                            });
+
+                            if (!res.ok) {
+                              const err = await res.json().catch(() => null);
+                              alert(err?.error || 'Failed to update status');
+                              return;
+                            }
+
+                            queryClient.invalidateQueries({ queryKey: ['invoices'] });
+                          } catch (err) {
+                            console.error('Network error updating status', err);
+                            alert('Network error');
+                          }
+                        }}
+                        className="ml-2 px-2 py-1 border rounded-lg text-sm"
+                      >
+                        <option value="DRAFT">draft</option>
+                        <option value="SENT">sent</option>
+                        <option value="PAID">paid</option>
+                        <option value="OVERDUE">overdue</option>
+                      </select>
                       <button
                         onClick={() => handleView(invoice.id)}
                         className="px-3 py-2 text-sm bg-slate-700 text-white rounded-lg hover:bg-slate-600 transition-colors"
diff --git a/prisma/migrations/20260401195727_add_invoice_status/migration.sql b/prisma/migrations/20260401195727_add_invoice_status/migration.sql
new file mode 100644
index 0000000..8d57fe9
--- /dev/null
+++ b/prisma/migrations/20260401195727_add_invoice_status/migration.sql
@@ -0,0 +1,5 @@
+-- CreateEnum
+CREATE TYPE "InvoiceStatus" AS ENUM ('DRAFT', 'SENT', 'PAID', 'OVERDUE');
+
+-- AlterTable
+ALTER TABLE "Invoice" ADD COLUMN     "status" "InvoiceStatus" NOT NULL DEFAULT 'DRAFT';
diff --git a/prisma/schema.prisma b/prisma/schema.prisma
index 06ebb4f..56c152b 100644
--- a/prisma/schema.prisma
+++ b/prisma/schema.prisma
@@ -59,6 +59,8 @@ model Invoice {
   periodStart DateTime?
   periodEnd   DateTime?
   createdAt   DateTime  @default(now())
+  // Status of the invoice: draft, sent, paid, overdue
+  status      InvoiceStatus @default(DRAFT)
   
   clientId    String
   client      Client    @relation(fields: [clientId], references: [id], onDelete: Cascade)
@@ -68,4 +70,11 @@ model Invoice {
   isPaid      Boolean   @default(false)
   // Optional due date for the invoice; if not provided, default applied in server logic
   dueDate     DateTime?
+}
+
+enum InvoiceStatus {
+  DRAFT
+  SENT
+  PAID
+  OVERDUE
 }
\ No newline at end of file