No two words are more confusing to new business owners than “invoice” and “receipt.” Somehow you know that they are different, but you don’t know exactly what sets them apart. This confusion makes you use the terms interchangeably, which leads to further confusion and sometimes works to the detriment of your business.
In this piece, we’ll highlight in detail the invoice vs receipt comparison. That way, you’ll know what each document is and can avoid any future mix-ups that might cost you.
Invoice vs Receipt – What are the Differences?
Invoices and receipts are essential business documents for various reasons but, most importantly, for filing taxes. That’s why it’s always a great idea to know the difference between invoices and receipts. This knowledge is just what might keep you in good terms with the taxman.
Understandably, there’s a lot of similarity between the two documents, which makes it easy to mix them up. Plus, once you know an invoice as a receipt and vice versa, these mixed-up identities stick with you for a long time.
Right off the bat, both documents give details of transactions. Despite this fact, the terms invoice and receipt aren’t interchangeable. That’s because they denote two totally different things.
What is an Invoice?
Companies send invoices to customers or companies after they receive a product or service. Invoices are billing documents that indicate what the customer should pay for the products or services. Think of an invoice as a formal payment request sent after the customer acquires what you’re selling.
Invoices are legally binding documents that safeguard a businesses’ cash flow. As such, invoices contain much more information than just the bill. Most invoices also include buyer details, company contact details. Description of the goods and services and sometimes VAT details if necessary.
You should also include a due date that the customer shouldn’t exceed making the payment. Failure to do so may have certain legal implications on the buyer’s part. You can check out these free invoice templates from Adobe Spark and find one that suits you.
What is a Receipt?
When you buy anything from the store, you get a receipt after the purchase. The receipt acknowledges that you purchased goods from the store and that you also paid for them.
Just like an invoice, a receipt is also a legal document. On the buyer’s part, it indicates proof of ownership. On the sellers’ part, it substantiates that the goods they sold were actually paid for.
A receipt is less detailed than an invoice. It lacks company details, date of purchase, and stuff that you’d usually find on an invoice. Here are some other differences between invoices and receipts:
1. You give the buyer the receipt after they pay for your goods or services. You send the invoice after the buyer acquires the goods.
2. A receipt proves that the buyer has paid for the hoods, while an invoice is a request for the payment.
3. A receipt may sometimes go to a third-party to prove that the customer paid for goods while you send an invoice strictly to the buyer to get paid.
Now you know the differences.
Invoices and Receipts are equally Important for Business
As a business, you need both documents for various reasons. Hopefully, you now know how the invoice vs receipt compares and what role each plays. Remember to use each document as you should and also include all the necessary details in your invoices.
Do you want to learn more about business paperwork and other topics? Check out our other posts if you’d like to expand your knowledge.