Keeping business documents up-to-date is the basic aspect of maintaining accurate records. It helps understand the exact financial condition.
But, this task can be confusing for most businesses, sometimes they get confused between various legal documents as many businesses do not understand the difference between invoice vs. receipt.
In this blog, we are going to indicate all the similarities and differences of both invoice and a receipt.
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Invoices and receipts both play a major role in supporting the sales process of any business. An invoice and a receipt for the same transaction have many differences and similarities as they request and confirm the payment respectively.
In simple words, an invoice is a document that is issued by a seller to the customer before the payment is made whereas a receipt is received by a customer as proof of payment after the payment has been made.
Let us check out the main difference between an invoice and a receipt in detail.
What is an Invoice?
An invoice is generated to ask the customer for the payment. When received by the customer, they call it a bill.
This legal document itemizes the product or service, and it calculates the prices, total cost, additional business expenses, and applicable taxes that the client owes you for the work, time, and materials. As a part of business sometimes owners also get the bills from the vendors.
Businesses issue invoices to the client indicating the amount to be paid. Sometimes, the invoice is also sent for the request for payment of the outstanding invoices or the partial amount that has to be paid in advance.
An invoice can be generated digitally using invoicing software or in a traditional way. Most businesses prefer to use the modern way of generating invoices and get instant payment.
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Whether your business is in construction, landscaping, consulting, photography, auto repair, or the medical field, invoicing takes way too long. That’s why we’re here. InvoiceOwl makes your invoicing faster and simpler so you can get paid promptly and without the hassle.
What is the Purpose of an Invoice?
Businesses issue different types of invoices that serve different purposes.
Here are some of the main purposes of having an invoice for your customers:
- Invoices are used to request payment from the customers against the provided products or services.
- Invoice ensures a smooth cash flow that is essential for running a successful business.
- Invoicing is the best way to record the transaction between a buyer and a seller and to get paid quickly.
- It notifies the client about the exact amount that the client needs to pay before the deadline.
- Invoices help keep track of the sales and estimate future revenues.
Now that we know the purposes of invoices, let’s know when invoices are used.
When to Use an Invoice
As discussed earlier, invoices serve different purposes. And to better understand the use of an invoice, let’s know when an invoice is used.
- When the vendor wants to request a payment from the customer for the product(s) or service(s) sold.
- When the vendor wants to notify the customer about the amount payable
- When the seller wants to inform the client about the positive balance
- When the vendor wants to collect a deposit or advance payment
What is the Receipt?
A business owner issues a receipt once the client has paid their invoice as proof of payment.
Well, it is the most essential proof of the purchase which a customer needs to have.
For example, if a customer claims he/she has paid more than they actually have, you can show the receipt for the proof of the transaction.
This can help both the client and the customer in avoiding a complicated situation. You can also use those receipts for future transactions with clients.
Receipts make it easy for a small business owner to calculate the payments that are already paid and will also help you calculate the tax to make sure you are not disobeying any taxation rules.
It can be only issued when the sale is completed and after the seller receives the payment. The receipt can be either sent digitally or in printed form through the mail.
What is the Purpose of a Receipt?
- A receipt is one of the documents that a vendor or seller issues to their customer to notify the payment received.
- Receipts are important for everyone that is doing small business or large business and selling goods or services. This is considered as a piece of document that helps businesses in tracking most of the sales and additional business expenses.
- It also serves as an important document to recover any lost invoice income or for a tax audit.
- Many businesses use receipts to file their financial reports and plan their budget for the next financial year.
- Not only this, but receipts are equally important for buyers as well, especially if they want to reclaim the VAT on a particular product purchase. It is also helpful if the buyers want to return or exchange any product, at that time the seller will ask for the receipt.
When to Use a Receipt
Every business has to use receipts, but do you know when?
Let’s quickly see when to use a receipt.
- When the vendor wants to confirm the payment
- When the customer wants to claim a refund
The Differences and Similarities of Invoices and Receipts
Both invoices and receipts are considered commercial tools, which are widely used in the business transaction process. Both the documents have their own value and fulfill different purposes. Receipts and Invoices both have differences and similarities too. Let us see everything in detail.
|Basis of Difference||Invoice||Receipt|
|Purpose||An invoice is generated to request payment.||A receipt is proof of received payment.|
|Time of issuing||An invoice is issued before the payment is paid.||A receipt is issued after the payment is paid.|
|What it states||The invoice includes the total amount that is due or needs to be paid.||The receipt includes how much amount has been paid and what was the mode of payment.|
|Use||Refunds can not be claimed based on the invoice.||Refund claims need a receipt of the payment made.|
|It tracks||The goods or services sold.||The goods or services bought.|
How to write Invoices and Receipts Differently
As invoices and receipts serve different purposes, it is written differently. So let’s quickly know the elements to mention in an invoice and a receipt.
This will make the difference even clear.
|Invoice date||Payment date|
|Invoice ID||Referral Invoice ID|
|Vendor information||Receipt ID|
|Client information||Vendor information|
|Line items with description||Client information|
|Total amount to be paid||Total amount paid|
|Payment terms||Mode of payment|
Did you get the difference?
If not, let’s see the example of an invoice and a receipt.
Businesses Using Invoice and Receipts
Every successful business needs to have both an invoice and a receipt. From freelancers to startups, small to large businesses, designers to carpenters, everyone issues invoices and receipts. Every business that sells products or services needs to issue invoices and receipts.
Thanks to technology businesses can send invoices and receipts via email too. These legal documents are generally useful to sellers, merchants, traders, and vendors.
Still, having questions related to invoice vs receipt?
Not to worry! Here, we answered some of the most asked questions from our readers.
Can an invoice serve as a receipt?
No, the invoice and a receipt are both separate things and fulfills different purposes, they are even created at the different time of the business process. Both of them are used for different purposes and an invoice can’t be served as a receipt.
What is the difference between invoice and receipt?
A billing invoice is generated to ask for the total amount that is due and a receipt is sent after payment is received by the seller or vendor. Another difference between a billing invoice and a receipt is, the invoice contains all the essential details about the purchased products and services whereas the receipt contains all the details about the invoice.
Does an invoice mean you have paid?
No, the invoice does not mean you have paid the amount, but it is created to ask for the payment. Whereas, a receipt indicates the amount paid.
What is an invoice used for?
An invoice is used to ask for the payment of goods and services or products provided. It includes all the essential details such as invoice number, the date the invoice generated, the contact information of the seller and the client (business name, address, phone number, fax number), product or service detail, payment method, applicable taxes, due date, and the total amount due.
What are the similarities between invoices and receipts?
Despite several differences, invoices and receipts have similarities too. And here are the similarities:
- Both of them are issued by the sellers.
- Both of them are legal documents.
- Both of them list seller and client information.
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Invoice and receipt both are important parts of the purchasing process. The Invoice helps businesses to inform clients about the total pending amount, whereas a receipt is a way to identify whether the amount for the stock or goods and services has been received or not.
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