Is an Invoice a Receipt? | Definitions and Differences

“Is an invoice a receipt?” This is the question you have probably asked yourself if you’re a business owner offering certain products or services. The two documents are quite similar, which is why it’s no wonder so many people often mix them up.

But, understanding the difference between an invoice and a receipt is crucial if you want to maintain healthy business practices and accurate financial records of your sales. Although this may seem difficult, don’t worry—we’ve got your back!

In this article, we will explain what invoices and receipts are, why they’re important, how they’re different, and when you should use them! Wait no more—let’s get to the point right away!

What is an Invoice?

An invoice is a legal document that you, as a small business owner, independent contractor, or freelancer, give to the buyers of your goods or services. It breaks down the payment terms both parties have agreed to and is used when you want to bill your clients for the work you have done.

The information that goes on an invoice varies from company to company, but it typically includes the following:

• Your company information. Invoices must contain your company’s name, address, phone number, logo, etc.
• Your client’s information. Besides your information, you also need to list your customer’s name, address, phone number, and other important contact details.
• Dates. The invoice must also specify the date of issuance and the payment due date.
• Invoice number. Although it might seem like a minor detail, an invoice number is required by law in some countries, and some clients might not even accept this document without it.
• PO number. A purchase order number, or PO, is a unique code that acts as the official confirmation of the buyer’s intent to buy something from you.
• List of goods or services. The invoice must also include a detailed list of the goods and services you provide, the quantity, and the price of each item.
• Additional fees or discounts. If you’re offering a discount to your client or if they have to pay an additional fee for late payment, your invoice must clearly specify it.
• Note to your client. Lastly, an invoice can contain a nice message to your client, such as a thank-you note.

Why are Invoices Important?

The key reason why invoices are important is that they ensure you get paid on time by your clients. In fact, an invoice is a legally enforceable agreement between the business and the client.

Secondly, you can use invoices to keep track of your sales and manage your finances. These documents tell you when you made a sale, how much you billed a certain client, etc. With this information, you can create accurate business forecasts and determine which projects make you the most money.

Lastly, you need invoices to pay taxes. At the end of each year, you’ll have to file the W-2 form. To complete it, you’ll need some information from your invoices, such as the taxable payments you received throughout the year or the amount of taxes you owe for a certain sale.

What is a Receipt?

Receipts come in various shapes and sizes and serve as an accounting document that you provide to your clients as proof of payment for your products or services. Also known as a “receipt for payment,” this document typically includes the following information:

• Your company information. A receipt must include your company’s name, address, and phone number at the top.
• Invoice date. Besides the company information, your receipt must also include the date of issuance.
• List of goods or services. The receipt must outline each good or service provided to the customer, as well as the cost of each item.
• Additional fees. If there are any taxes or handling fees related to your items, they should be listed before the total payment amount.
• The total payment amount. Last but not least, the receipt should include the total amount your client paid for the goods or services. Note that it should match the total invoiced amount.

One of the most common examples of receipts is the one you get from purchases at grocery stores or pharmacies. On them, you’ll see how much you paid for the items you bought, the taxes, the date when the receipt was created, the store name, etc.

How are Invoices and Receipts Different?

As you can see, invoices and receipts contain similar information. But they are also quite different, regardless of their similarities.

Here are some of the biggest differences between invoices and receipts:

• Invoices are issued before the payment is made, whereas receipts acknowledge the payment and are provided after it.
• A receipt is a legal document that serves as proof of purchase, while an invoice is a request for payment.
• An invoice is usually more detailed than a receipt, as it shows the exact details of the products or services provided, billable hours, detailed taxes, etc.
• Invoices are forwarded directly to the client who is billed for the goods or services, whereas a receipt can go to a third party since it serves as proof of payment.

When Should I Use an Invoice?

Whether you’re a freelancer or a business owner, you’ll need invoices to bill your clients. You’ll have to send them either in digital form or via mail. The document will serve as proof of order and ensure you get paid for your work.

An invoice also allows you to bill your client in advance or set up a payment schedule (e.g., weekly, biweekly, monthly, bimonthly, etc.).

When Should I Use a Receipt?

Giving receipts to your customers is important, as they might use them to prove they made a certain purchase. The receipts could also be used by customers to help them deduct purchases from their tax return or request reimbursement from their employer.

That’s why you should always hand out a receipt to your customers after the transaction takes place. You should also make two copies of each receipt, one of which will go to the customer and one for your business records.

Key Takeaways

• An invoice is a legal document that’s used to bill buyers for goods or services. It contains payment terms, company and client information, the date of issuance, etc.
• Invoices are important because they ensure you get paid on time, help you keep track of sales and manage your finances, and make it easier for you to file taxes.
• A receipt is an accounting document that serves as proof of payment for your products or services.
• This document contains similar information as invoices, such as the prices of items, date, company name, etc.
• The biggest difference between an invoice and a receipt is that the former is used to bill clients, while the latter is used as proof of purchase.

Final Thoughts

Regardless of their differences and similarities, you should always try to create both invoices and receipts when selling goods or services. The invoice will allow you to bill someone for your items, while the receipt will provide both you and your client with proof of payment.

If you want to make invoices the easy way, you can use our free online generator. With it, you can create invoices in a few steps, download them, and forward them to your clients with zero complications!