Spend any amount of time in business, and you'll hear the words "invoice" and "bill" used as if they were the same. But while the difference between an invoice and a bill can be subtle, it is nonetheless significant.
What is the difference between a bill and an invoice? We’ve prepared this quick guide to help you distinguish between the two.
Definition of an invoice and a bill
For starters, the terms "invoice" and "bill" have precise definitions when it comes to accounting. Let's define these two terms clearly before explaining the difference between a bill and an invoice.
What is an invoice?
At its simplest, an invoice is a commercial document issued to a customer following the exchange of goods and services.
Invoices are used for requesting payment from your customers, as well as for documenting the goods and services involved in a business transaction. This means that a business issues an invoice after a transaction has been completed.
An invoice can be used for any type of business. However, they are most common for businesses that make large, bulk purchases, as well as contracting services, such as construction, web development, educational services, and any services that charge an hourly rate.
What is a bill?
A bill refers to the amount of money a customer owes a business. This commercial document is a printed statement describing the total amount owed in exchange for goods or services. Usually, a bill comes with the expectation of immediate payment, which makes them standard for retail businesses and restaurants.
How invoicing software can make life easier
The right invoicing software can make life easier for you and your valued customers. How can software improve your billing and invoicing process? With the right tools, you can:
- Create customized, professional invoices
- Send invoices right from your phone or mobile device
- Accept credit card payments quickly and safely
- Send automated payment reminders to your customers
- Integrate with your accounting software to stay on top of your finances
Best of all, you can conveniently access these great features through a mobile app, which can streamline your billing process and help you get paid faster.
With this increased cash flow, you'll be better equipped to cover your expenses and invest in your future. In short, invoicing software can help your company grow.
Use cases: the difference between an invoice vs. bill
You can probably already see how the terms "invoice" and "bill" can be used interchangeably. Each document will contain information about how much a customer owes. An invoice and bill both record data on the goods and services associated with the transaction.
But there are several key distinctions between a bill and invoice, and this can matter a great deal when it comes to your company's accounting practices.
The key difference — who receives a bill vs. invoice?
The key difference between an invoice and a bill lies in who's looking at the document. A business sends an invoice to a customer. Your customers will treat this document as a bill since it reflects the amount of money they owe you for your goods or services.
For example, if you are a web designer, you would send an invoice to a customer after completing a new website. For the customer, the invoice would function as a bill. The customer pays according to the terms on the invoice.
If it's not already obvious, this means that business owners can receive a bill from their suppliers or vendors, like when they purchase new inventory. So while you'll be sending invoices to your customers, you'll also receive bills from vendors and contractors.
These incoming bills are handled as part of your broader accounts payable process. Accounts payable refers to the money you owe to others for goods and services.
The level of information on a bill vs. invoice
Another key difference between an invoice and a bill relates to the level of information found in each document. While a bill might include only a general description of the transaction, an invoice must contain several key pieces of data.
Invoices should be clearly labeled as an invoice at the top. They should also include information such as:
- Your business contact details (address, contact information, etc.)
- The contact details of your customer
- A unique invoice number
- The date the invoice was sent
- A description of the goods or services rendered
- The total amount owed by the customer
- Terms of payment
- Payment options/methods
- The payment deadline
Naturally, you can also include any unique, personalized items about your business as well, along with a brief thank you to express your gratitude to your customer.
Depending on the nature of your business, you might also include details about payment options, discounts, and any other relevant information.
Conversely, a bill will usually only include the total amount due and a limited description of the goods and services rendered. A bill won't contain contact details or details about each transaction, nor will a bill contain information about payment terms, since payment is typically expected to be submitted immediately.
Invoices also offer a distinct advantage when it comes to recurring services. For example, if your business provides monthly web development services to a customer, you can send recurring invoices to your client through your invoicing software platform.
Bills don't work this way. Bills are best for one-time transactions or those that require immediate payment. This means that recurring invoices are better for collecting payment for ongoing services.
What is the difference between a receipt, invoice, and bill?
Now that you understand the difference between these two terms, let's add a third. What is a receipt? A receipt is a document issued by a business after a sale has taken place, and the customer has paid the bill/invoice. It might contain some of the same data as a bill, such as a description of the products and services sold and the total amount of money that changed hands.
A receipt serves as a record of payment. It indicates the completion of a transaction. For example, some business owners might expect their employees to submit a receipt if they require reimbursement for business expenses.
What is a customer statement?
As a business, you might store information about your customers, including records of the services sold to each one over a particular period.
A statement is a document that summarizes your clients' purchase history. It shows the goods and services provided and how much money they've spent over a designated period.
Unlike bills and invoices, a statement won't have detailed information about each sales transaction, but it will have information about whether your client's account is in good standing or not.
A statement can reveal whether a customer has any unpaid bills or invoices, ensuring that you promptly get paid for any outstanding debt.
When to use a bill vs invoice
Invoices and bills have their unique place in the world of business. How do you decide when to use each document?
When to use an invoice
Invoices are ideal for businesses that provide a product or service but then arrange for their customers to pay them on a future date.
This arrangement can be ideal for companies that deal with large, bulk purchases of supplies and inventory and those who provide a specific service to a customer or another company.
Some common examples can include:
- Bulk suppliers
- Software and web developers
- Freelance writers and designers
- Construction companies
- Landscaping companies
- Educational service providers
This step is crucial when it is part of a more extensive procurement process. For example, your customer might submit a purchase order for a particular product or service. The purchase order and invoice number can then be used to track the order’s status and monitor the payment status.
This doesn't have to mean that the invoicing process is slow. Invoicing software can help you accept credit card payments quickly, safely, and efficiently. You can track orders and maintain total control over your business with these tools.
When to use a bill
When should you use a bill instead of an invoice? A bill makes the most sense for a business that expects its customers to make immediate payment for goods or services.
Restaurants, bars, and hotels might rely on a billing process, granting their customers access to a product or service and billing them once the sales transaction is complete. The total amount that the customer owes can be printed or written on the bill.
After the bill is paid, the business can issue a receipt to confirm that the payment has been delivered and that the transaction is concluded.
How accounting software handles invoices and bills
Since most business owners rely on accounting software to handle their books, it might be helpful to understand how today's software platforms distinguish between bills and invoices.
What is the difference between a bill and an invoice in QuickBooks?
Intuit QuickBooks classifies bills and invoices in very distinct ways. According to this accounting software giant, an invoice includes the money your customers owe you, while a bill refers to the money you owe your creditors.
In other words, an invoice and a bill are classified as income and expenses, respectively. For example, your utility bills or a bill received from a vendor are each classified as a business expense. On the other hand, an invoice count toward your business income.
What is the difference between a bill and an invoice in SAP?
Likewise, SAP's accounting software makes the same distinction, where invoices are used to describe the products and services you deliver to your customers. At the same time, bills serve as a receipt for the payment you render to your suppliers or creditors.
Frequently asked questions
While the terms are used interchangeably, invoices and bills contain different information and can serve different purposes. But you might still have some questions about how bills and invoices operate. Here, we'll answer the most common questions we hear:
If you send your client an invoice, it's unlikely that you'll need to send a bill, too. Your invoice will contain a significant amount of detail about the products sold or services rendered, so it won't be necessary to send an additional document.
However, if you only send your customer a bill (that is, without the additional information found on an invoice), they may not submit payment, especially if they're waiting for a formal invoice. Send an invoice rather than an additional bill when in doubt.
An invoice serves as a document requesting payment for products sold or services provided but does not have the same legal weight as a contract. Customers who submit a purchase order are legally bound to the purchase order terms. However, your bills and invoices won't be considered legally binding.
A bill will contain details about the goods or services provided by a company or vendor, as well as the amount of money owed for the services sold. But a bill won't contain information about the payment rendered for these services.
Only a receipt will have payment confirmation written or printed on the document. You can check the information against your bank accounts or credit card statement to confirm the purchase.