Invoice vs. Receipt: What Are the Differences?

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Although these two terms look similar to most of us, and they are both related to payments in general, they are not the same. If you are interested in developing your own business, you need to understand the difference between an invoice vs. a receipt to run your business smoothly, in accordance with all the necessary regulations.

The Definition of an Invoice

Let’s start by explaining what an invoice is. The straightforward definition would be that it’s a legal document whose purpose is to authorize a sale. Invoices are written by the seller and issued to the buyer.

An invoice should contain the following details:

  • product/service price
  • goods quantity/hours worked
  • taxes
  • possible discounts
  • the due payment amount
  • date of issue of the invoice
  • specific invoice number
  • the seller’s signature

Writing an Invoice

As we have previously mentioned, every legal document should include specific information to make it valid. And even though there is a distinction between an invoice vs. an official receipt, there are some rules that apply for both of those, and you should follow them to compose a valid document.

Let’s learn how to write an invoice in a few simple steps:

  1. Make it look professional and personalized. You can do this by choosing a specific color that you think represents your brand. Don’t forget to add your company’s logo, either.
  2. Fill out the contact information. This part should include both the sender’s and the recipient’s details (name, address, phone, and email).
  3. Select a due date. Choose the date on which you expect your business invoices to be paid. Make sure to adjust the invoice number – this invoice number goes on your receipt later – so it matches that particular order.
  4. Describe the service or product you are invoicing the client for. Explain what you are billing your client for clearly and concisely. You should fill in the price and the quantity – where applicable – as well as the appropriate taxes in case they are included.

Add payment details. This is the place where you should include the available payment methods and the invoice payment terms.

Can an Invoice Be Considered a Proof of Purchase?

Even though they are both legally non-negotiable instruments, there is a significant difference between an invoice and a receipt. An invoice can be proof of a formal agreement between a buyer and a seller, but it doesn’t mean that the service has actually been paid for. On the other hand, a receipt does confirm that the service you’re invoicing someone for has been paid.

Unfortunately, if your business model includes invoicing, you’re likely to run into issues with late or missing payments on your invoices. To avoid that, always set your payment terms clearly at the very beginning of your business relationship. You can also try sending reminders to your customers via email or use an app that lets you compose unpaid-invoice notifications to be sent out automatically once payment becomes overdue.

What Is an Invoice Number?

The invoice number is definitely one of the most critical parts of an invoice. An invoice number is a unique consecutive code assigned to invoices by default. Correct invoice numbering ensures that all your business income is properly documented for accounting or tax purposes. Invoice numbers also make it easier for you to track payments and assign them to the correct receipts. Most importantly, an invoice is not considered a legally binding document if it does not contain a specific invoice number.

What Is a Receipt?

A receipt is a document that proves a transaction has been finalized. Receipts are given to the customer once their payment has been settled. Aside from its allotted invoice number, a receipt should include the number of goods purchased, taxes, price, discounts, payment date, receipt number, the total amount paid, and the vendor’s signature.

Customers often need receipts to be able to either exchange or return a product, or redeem their purchases if they’re using company funds, for example. Of course, a business owner should keep copies of the receipts as a record of all of their transactions, and to ensure your accounting books are accurate.

How To File Invoices and Receipts

Learning to manage your paperwork will make your business more productive. Here are a few tips on how you can keep things organized:

  • Arrange your files in chronological order by labeling them and splitting them into folders by date.
  • Organize documents and relevant data using spreadsheets. Use an electronic invoice book to keep track of your due and fulfilled payments.
  • Use the cloud to store and share files, so your clients can access them without you having to send them documentation via email. Just remember to restrict editing rights.
  • Review the files at the end of the year, and store them in a safe place.

In case you are struggling with some unpaid invoices, invoice factoring companies can buy off your outstanding invoices for cash.

FAQ

Can an invoice serve as a receipt?

When talking about an invoice vs. a sales receipt, it’s important to punctuate that the key difference is that an invoice is a document issued prior to payment. In contrast, a receipt is given after the payment has been made. By sending an invoice, you are actually requesting compensation for the service you have provided. Once the transaction is finished, the other party should receive a receipt as proof of that.

What is the difference between a bill, an invoice, and a receipt?

When it comes to the invoice vs. a receipt vs. a bill parallel, you can look at it like this: An invoice is a legal document whose purpose is to authorize a sale; a receipt is a legal document that proves that the sale has been finalized and the product or service paid for. On the other hand, a bill is a general term that does not refer to a specific document in a legal sense. A bill can refer to a number of various documents, but it usually just means a file containing info on how much the customer owes to the vendor.

Does an invoice mean you’ve paid?

No, it doesn’t. An invoice serves to let you know how much you should pay and within what time frame. An invoice – vs. a receipt – contains the list of sold products along with the amount of money owed for each of them, but it cannot serve as proof of payment.

What qualifies as an invoice?

Any document that includes the relevant information about the vendor and the client, a clear description of what it is charging for, the date on which the goods were provided, as well as the date of the invoice, qualifies as an invoice. Besides that, it should also contain a specific invoice number and the available payment methods.