The Difference Between Invoice and Receipt

If you are a small business owner, you need to document every transaction. Without any records, it is difficult to do your business taxes and keep your finances in order. If you do your own bookkeeping, the terms “invoice” and “receipt” are probably familiar to you. They both have similar functions but are very different from each other. It is important to know how these two differ and understand when it is better to use an invoice or receipt for your customers.

What is an Invoice?

An invoice is a document that is made by the seller and he or she sends it to the customer to collect the payment. Invoices itemize the products or services provided to determine the total amount owned to the seller. Listed in an invoice is the products or services provided, how much the cost is, and the forms of payment the seller accepts. Below you will find in depth of what an invoice includes.

  • Your business name
  • Your acceptable forms of payment
  • Your contact information
  • Customer’s contact information
  • Customer’s business name
  • Customer’s billing address
  • Invoice number and date
  • Payment terms
  • Description of product or service provided
  • Quantity or hours for each product or service
  • Total amount due

All of this information is needed to let your customers know what they are being charged for and what your expectations for compensation are.

Invoices are common across various industries such as restaurants, online web services, e-commerce businesses, doctor’s office, dentist’s office and more.

What is a Receipt?

Although a receipt contains similar information, it is different in a few ways. A receipt is simply proof of the payment, the invoice is the request for payment. It confirms that a customer has received the goods or services they paid a business for.

Receipts can be either physical or electronic when given to a customer. Sometimes they are printed on paper or they are sent via email. No matter the method of choice, receipts are important for both customers and businesses. If a customer has an issue with the product, they can use the receipt for a refund or exchange.

The following information is included in a receipt.

  • Business name, logo, contact information
  • Date of sale
  • An itemized list of sold products and services
  • The price of each product and service
  • Any discounts or coupons
  • The total paid amount including taxes or fees

Other information that a receipt could include are the payment method, terms of the sale, and return policy. It is important to have as much information as possible on the receipt in the case there are any issues that arise that must be fixed.

Similarities between Invoice and Receipt

  • Issued by vendors
  • Legal documents
  • List vendor and customer information
  • Both list the total amount

Differences between Invoice and Receipt

  • An invoice is a request for payment, a receipt is the proof
  • An invoice is issued before the payment is made, a receipt is issued after the payment
  • An invoice lists amount that is due or needs to be paid. The receipt shows how much has been paid
  • An invoice goes to the person who needs to make the payment while a receipt will go to the customer or a third party as proof of payment
  • An invoice is used to keep track of goods and services sold. A receipt acknowledges that payment has been made

Reason to Issue Invoices and Receipts

Even though it might seem like a lot of work to use both invoices and receipts, they are necessary for your business’s operations. You need to be able to collect payment and they help you keep your business afloat. They each are legally binding documents so if the buyer refuses to issue payment, you can sue the customer. They also help you keep track of your cash flow which essential for helping you adjust your business budget.

The Bottom Line

Depending on the type of business you have, you may use invoices more than receipts or vice versa. Often times you will most likely even use both to run your business and help you getting paid in full and on time. On top of that, you will have accurate financial reports and be able to do your business taxes hassle free.