Running a business requires a lot of documentation in order to operate effectively. But if you're a business owner, you might have trouble keeping track of all the different documents that accompany the sales process. One of the most crucial distinctions to make is the differences between an invoice and a receipt.
Business owners use both invoices and receipts as part of the sales process, but each document has a unique function. In this article, we'll help you understand the difference between an invoice and a receipt, as well as show you when to use each one!
What is an invoice and how do you use it?
When you deliver goods or services to your customers (or other businesses), you might send them an invoice after the sale has been finalized. An invoice is simply a request for payment, which is why these documents are typically sent once a transaction is complete.
When do you use an invoice?
An invoice lists the quantity of goods or services that have been rendered and requests that the customer pay the agreed-upon price. The invoicing process typically occurs after the transaction is complete, ensuring that both parties are satisfied that the terms of the original arrangement have been met.
What information should my invoice contain?
There's no hard and fast rule about what information belongs on an invoice, but generally, you should aim to include as much information as you can without making the invoice confusing.
Invoices should generally contain the following:
- A logo or header that includes your business name
- Your contact information (e.g., phone number or email address)
- Customer information (name, contact details)
- Invoice number
- Date prepared
- Description of goods or services
- Total amount due
- Invoice payment terms
- Payment options
By submitting this document to the customer, you are issuing a request for payments to be made in the amount listed on your invoice.
How invoicing software can streamline your small business
If you're a small business owner, it's easy to feel overwhelmed by all these details. On top of that, small business owners don't always have the financial capital to stay on top of their sales invoices.
That's why Invoice2go provides solutions to help you manage your invoicing process and better serve each customer. We can provide templates that you can use to create your own custom invoices, as well as an invoice generator that can be used to create and send invoices to your customers right from your phone or wireless devices.
You can stay on top of the whole process through our monitoring system, so you never miss a single detail.
Invoicing software can save you valuable time. Relying on this technology can minimize business expenses you might have otherwise spent on additional personnel. This means you can spend less time managing your invoices and payments and focus on what you're good at instead: Growing your core business.
What is a receipt and when will a vendor use one?
A receipt is a document that confirms that a payment has been made. A vendor might issue a payment receipt to a customer or a business as proof of payment for the goods or services that were rendered.
Sales receipts are often small slips of paper issued at the time of the transaction. They serve as proof that the sale took place.
When is a receipt issued?
A receipt is issued to the customer after payment is received. Payment receipts are used as proof that payment has been received and that the terms of the original agreement have now been met.
What information is included on a receipt?
Sales receipts generally include some very specific information, including:
- Business name
- Business information (address, fax number, etc.)
- Indication that payment has been received
- The original invoice number
- Date of payment
- Payment received
- Amount still owed (if applicable)
On the sales receipt document, there might also include information about the transactions involved, such as the payment method, a product identification number, and any taxes that applied to this sale.
If the customer is taking part in some sort of payment plan, individual payment receipts may be issued after each payment to serve as proof that these payments were made on the appropriate dates. This may be particularly important for car sales or other larger transactions that require multiple payments over a larger period of time.
Of course, many small business owners also like to include other relevant information on their receipts, such as the return policy for their business or advertisements for future sales at their store or business.
Sales receipts and returns
Every business owner is free to establish their own policies regarding returns, but typically a sales receipt is necessary to return a product for a refund.
Without a document showing proof of payment, the customer may only be entitled to store credit. Even then, the vendor may have additional terms and conditions that prevent customers from returning a product for a full refund.
Additionally, without a receipt to provide proof of purchase, customers may receive credit or a refund in an amount that's less than they originally paid.
How invoices and receipts are similar
An invoice bears a lot of resemblance to a receipt (and vice versa). You may already notice that both are:
- Issued by a vendor to a customer
- Contain information about the transaction
- Include information about the amount of goods sold
- Have information about payments
- Share about the business itself
In other words, both invoices and receipts are important documents that are used to keep track of the sales process. Businesses rely on both of these documents to manage their business finances and monitor their sales.
What's the difference between an invoice and a receipt?
Simply put, an invoice is a request for payment and a receipt is the proof of payment. A receipt is a document confirming that a customer received the goods or services they paid for - and that the business was appropriately compensated for those goods and services sold to the customer.
Invoices and receipts are issued at different times
The biggest difference between an invoice and a payment receipt is the time at which they are issued. The simplest way to understand this difference is to think about how invoices and receipts are related to payment. Here's a useful bottom line:
- An invoice is sent BEFORE payment has been made
- A receipt is sent AFTER payment has been made
Therefore, the primary difference between an invoice and a receipt is an invoice helps businesses collect payments from their customers. A receipt is issued after the sale has been finalized.
Invoices and payment receipts are issued for different reasons
The difference in timing highlights a difference in purpose. An invoice is issued by a vendor to request payment from a customer, while a payment receipt is issued by a vendor to a customer to verify that their bill has been paid and the sale is final.
Invoices and receipts contain different information
While an invoice and a receipt will each contain information about the vendor and the sale, these two documents will contain slightly different information.
An invoice will contain payment terms about the future payment, while a payment receipt will include information about the payment methods involved in the transaction.
Examples of how to use invoices and payment receipts
It might be helpful to look at some examples of how an invoice and a receipt work in the sales process. These examples are meant only as a guide for your invoicing process. They're meant to illustrate how receipts and invoices can help to manage the payment process for your small business.
An invoice example
Carla is a small business owner that specializes in selling safety equipment to construction and industrial companies.
One day, Carla receives a purchase order for 10 articles of clothing from a local business. She fulfills their order in a timely manner, then issues an invoice to the company as a request for payment.
Carla's invoice includes:
- Her business name: "Carla's Coveralls"
- Carla's business address
- The contact details of her customer
- The invoice number
- A description of the articles of clothing sold
- The total sales amount (including taxes)
Best of all, because Carla relies on the latest invoicing software, she was able to automate the whole process from her smartphone, using an app to guide her through every step of the process.
Example of how to use a payment receipt
If we continue our invoice example, you can see how a payment receipt follows a similar pattern. After receiving the invoice, Carla's customers submitted an electronic payment for the articles of clothing they received, completing their transaction.
Once the bill was paid, Carla issued her customers a payment receipt that showed the details of the transaction, including:
- Her business name
- Business information
- Indication that payment was received
- The original invoice number
- Date of payment
- Payment received
Carla's customers can use this receipt as proof that payment has been made in the amount requested. If they need to return any of the articles of clothing they purchased, their receipt entitles them to a refund or an exchange with another product.
Are you still invoicing the old way?
According to a 2019 survey, one of the reasons that small businesses fail isn't due to a lack of a solid customer base. It's because business owners struggle to find competent help.
If you're just starting out in the world of business, you may lack the capital to invest in a fully-developed shipping and receiving department. At the same time, you might be spinning your wheels to try to keep tabs on your invoices, receipts, and other financial documents.
At Invoice2go, we want to help you grow your business by simplifying the invoicing process. We provide state-of-the-art, user-friendly solutions that allow you to create and send invoices with the touch of a button.
By relying on our invoicing software and digital solutions, you can save time while having all your important documents available at a moment's notice.
When you're ready to see how our services can make a difference for your business, try our no-obligation 30-day free trial. We're confident that you'll see that our digital services can save you time, so you can stay focused on growing your business.
Frequently asked questions
Do you still have questions about how to use invoices and receipts? Here are a few of the most common questions we hear.
Each of your invoices should contain an invoice number, usually located on the left-hand side of the invoice beneath the contact information.
If a purchase order was used, the invoice and purchase order numbers should be the same. An invoice number is generally used for accounting records to monitor the cash flow of a company and ensure prompt payment of any outstanding debts.
In broad terms, an invoice and a bill serve the same function, since they both represent a request for payment. The main difference between an invoice and a bill is usually found in who uses the term "invoice" and who uses the term "bill."
An invoice is typically used by the vendor to refer to the money customers owe them for their goods or services, while a "bill" is usually used by a business to refer to the money they owe a vendor.
Business expenses can generally be used to receive deductions on your annual tax return. The amount of money you spend on your business can be deducted from your annual income taxes, though you should always be sure to maintain proof of this amount by saving your receipts to document each transaction.
Business expenses must generally be proven with a receipt. Records from your bank account are not generally considered to be adequate proof, since this financial data doesn't contain details about the number of goods or services you purchased as part of your business.
Receipts from each transaction are the only reliable way of demonstrating legitimate business expenses. If you cannot produce a payment receipt to document the amount you've spent on a business expense, you run the risk of fines and other penalties.