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.
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.
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.
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.
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.
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.
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.