Invoice vs Bill vs Receipt: Everything You Need to Know!

While most people often use them interchangeably, invoices, bills, and receipts are important documents used for different purposes from an accounting point of view.

However, despite being used at different stages of the transactional process, all these commercial documents serve as proof of successful business transactions and are absolutely necessary for the bookkeeping and accounting process.

Understanding these differences is critical for businesses and individuals who want to keep their finances in order and stay on top of their financial obligations.

For that reason, we explain and compare all these documents below!

What Is an Invoice?

Invoices are documents businesses send to their clients outlining the specifics of the goods sold and/or services rendered along with the total amount due.

They are crucial in any business dealings as they serve as official transaction records and work as legally binding contracts between buyers and sellers issued with the expectation of receiving the payment owed within a specified time period.

When Is an Invoice Issued?

Invoices are issued immediately after the delivery of goods and services has been completed. However, invoicing also occurs before product delivery when ordering bespoke products, such as made-to-order vehicles, accessories, or clothes.

Key Elements of Invoices

So, what must be included in an invoice to be accepted legally? Let’s take a look:

1. Company branding—the company logo must be accompanied by the title ‘Invoice’ to help customers identify the document and who sends it;
2. Invoice number—to make accounting and referencing sales a lot easier, each invoice contains a unique identification number;
3. Seller & buyer details—invoices also include contact information about both parties, including names, addresses, and contact information;
4. Invoice dates—all the relevant dates should also be inserted: the date the purchase was made, the date of the invoice, and the due payment date;
5. Item(s) description—a section describing the product(s) and/or services that contains their designations, number of units, cost per unit, and total cost;
6. Additional charges—applicable tax and/or transport charges are also present;
7. Total amount due—this section provides the grand total amount payable that buyers are expected to cover within the specified time period;
8. Terms and conditions—special terms and conditions that apply, such as late or partial payments and return policies, must also be mentioned.

Note: To finalize the invoice, some businesses also add a brief and personalized ‘Thank You’ note at the bottom to express their gratitude for the collaboration.

What Is a Bill?

Bills are essentially the same documents as invoices, but they are differentiated from the receiver’s point of view. When invoices are sent out by a business supplying products and/or services, they are received and processed as bills by the customer.

That said, bills still outline the same information about the purchase, including the date, payment terms, and description of the goods or services.

Note: Some types of bills must be paid immediately and are less detailed than invoices sent out ahead of time by large businesses, including grocery bills, movie ticket bills, restaurant bills, and any other bills for products you can buy at retail counters.

When Is a Bill Issued?

Invoices become bills when they are handed to the consumer. Therefore, the function of the invoice is converted to that of a bill when the customer receives it upon delivery of the product or after placing an order for a custom-made product.

Key Elements of Bills

Now that you know bills and invoices are often the same, you could expect bills to have the same elements as those listed above:

1. Company heading—the business logo and contact information are listed near the top of the bill for identification purposes of the goods and services supplier;
2. Invoice number—if the same invoice document serves as the bill, the unique invoice identification number will also be present;
3. Seller & buyer details—seller and buyer details are mentioned on most bills outside the retail business, in which products sold are immediately paid;
4. Relevant dates—regardless of whether or not the invoice serves as a bill, the document will contain a date the purchase took place;
5. Products and/or services—most bills will list the items purchased, along with their quantity and the prices paid with and without taxes;
6. Payment terms—the total payable amount will be listed underneath the product(s) description along with the due date and applicable discounts;
7. Warranty details—some detailed bills also include warranty information.

Note: Certain bills, especially those prepared in advance, also require the signatures of all involved parties, including the buyer, seller, and the notary public.

What Is a Receipt?

Receipts are separate documents issued to the customer by the supplier after the bill has been paid as payment proof of acknowledgment. Similar to invoices and bills, receipts include more or less the same details, including the items bought and the paid amount.

Therefore, at the start of a transaction, businesses send out an invoice for the purchased items or services; customers receive these invoices as bills and pay them when expected; then, the supplier writes up and delivers a receipt to conclude the transaction.

Receipts are crucial when accounting completed trades for either party, and they can also be used to process claims for product returns and tax filing purposes. Because of that, buyers must immediately store them securely rather than toss them out.

When Is a Receipt Issued?

Receipts are prepared and sent out to the customer only after the payment for the goods and/or services has been successfully made. Once they are received, both the buyer and the seller can enter the transaction as completed in their books.

Key Elements of Receipts

In receipt-based transactions, sellers include roughly the same details they had to put down on the original invoice, including but not limited to the following:

1. Company branding—similar to the previous two documents, the title ‘Receipt’ and the company logo are typically included at the top of the receipt;
2. Receipt number—receipts also include a unique identification number for the same reason: easier record keeping;
3. Seller & buyer details—the names, addresses, and contact information of both the buyer and seller are crucial in most transactions;
4. Invoice referral—some receipts also include the number of the original invoice;
5. Products and/or items—the services rendered and the goods sold will be listed, along with separate columns for quantity, unit price, and totals;
6. Additional charges & discounts—tax, transport, and installation charges are also included, as well as any applicable product discounts;
7. Payment method & total amount—receipts often list the payment method, such as cash, cards, or bank transfers, along with the total amount paid.

Note: The receipt may also include the company’s return and exchange policies. 

Invoice vs Bill vs Receipt: Main Differences

Grasping the subtle differences between bills, receipts, and invoices is essential in keeping your finances organized at all times—the hallmark of any successful business.

First of all, these three documents contain very similar information about the same sale, and in fact, two of them (invoice and bill) are more often than not the same exact record considered from the perspective of different participants in the transaction.

However, they still differ in the way they are used, the point in time they are issued, and how they help companies and consumers. Let’s compare them in this table:

All in all, the process is very linear: customers choose and purchase products and/or services, vendors deliver the items and send out the corresponding invoices, customers receive them as bills and pay the due amount, and finally, vendors transfer the receipt.

Conclusion

For businesses and consumers, invoices, bills, and receipts are essential for keeping track of transactions, handling inventory, and managing accounts payable and receivable.

After all, invoices request payment, which is often enforced by the same document in the form of a bill. Finally, once payment is made, a receipt is prepared and delivered.

Ultimately, understanding the differences between all these commercial documents can help you manage your finances and ensure accurate tracking of payments and services.