Invoice vs. Receipt: Learn the Difference Here!

An invoice and a receipt both indicate the amount being charged to a customer for a service that was performed, but it is important to know that these two documents, while seemingly similar, have very different meanings.

Before you make a mistake by misidentifying an invoice or a receipt, you need to know what the differences are between the two. We are going to explain everything you need to know here about invoices, receipts, and the different meanings.

Invoice: The Seller’s Proof

As the seller of a good or service, it is your responsibility to provide the buyer with a document to show how much they owe. This is your proof as a seller that you have appropriately notified the customer that they owe you a specific dollar amount by a set date. Without providing the buyer an invoice, you are vulnerable to the buyer stating they “never received a bill” or that the payment due was “never provided in writing.”

Not only do invoices provide the buyer with the appropriate dollar amount due, but invoices are imperative to protect you from a buyer who may attempt to finagle their way out of paying for the goods or services they have received.

Receipt: The Buyer’s Proof

Once money has been collected for the goods or services performed, you will need to issue a receipt to your buyer. The receipt will include much of the same information the invoice includes. The receipt will serve as proof that the buyer has paid the bill in full and that the bill could not be attempted to be collected again.

What is Included on the Invoice?

The invoice will need to include important pieces of information. Not only will this protect you as the seller, but it will also tell your buyer how much to pay, what the charges are for, and when the payment is due. We will break this down below.

These are the key components when creating an invoice:

Header

The header is the name, address, and other contact information of your business. The header will be at the top of the page and stand out to anyone who views the invoice. It is the first means of identifying the creator of the invoice.

Invoice Number

The next component of the invoice will be the invoice number. This will need to be in a specific location on the invoice, such as the top right corner or immediately underneath the company name. The invoice number will help you apply a payment to the correct account and keep the records in an organized manner.

Due Date

The next piece of information that will need to be distinctive and separate from the remainder of the document. The due date will tell the buyer when they need to remit payment before any penalties, interest, or other repercussions go into effect. The due date also protects you as the seller to prove that you put the due date in clear writing to your customer without any misrepresentation.

Explanation of Charges

The body of the invoice will include an explanation of the charges you are collecting from the buyer. The explanations of charges should include the quantity of the item or service, the description of the item or service, and the amount charged for the item or the service.

Fees, Taxes, and Service Charges

Any fees, taxes, or service charges that go into the job will need to be included on the invoice. This may be fuel charges, local state taxes, or any additional product or material that was used for the job.

Total Amount Due

Below the explanation of charges, taxes, and fees will be the total amount that is due in full for complete payment. Below the total amount due, there may also be amounts for penalties or interest that will be applied if full payment is not received by the due date. You can also include an additional due date with an updated amount that will reflect the total amount due if payment is not received by the original due date.

Payment Arrangement Information

At the bottom of the invoice, you can include a calendar of payment options if the customer cannot remit payment in full by the date it is due. The payment arrangement information should also include important terms and conditions of the transaction. This will protect both you and the buyer.

You will be protected by ensuring you have notified the buyer of the potential consequences of missing a payment or paying late. The buyer will also be protected by having the terms of the transaction directly on the invoice itself, rather than on another piece of documentation that the buyer may no longer have.

How the Receipt is Different

Once a customer has paid their invoice, you will need to provide them with a receipt. The receipt will have some of the same information that is listed on the invoice, but there will also be additional pieces of information that are required to be included on the receipt.

When providing a receipt to a customer, you will need to include the following information:

Reference/Confirmation Number

This may be the most important piece of information on the receipt. The receipt may have a misprint, the payment may be inadvertently unapplied to the customer’s account, or the customer’s account may not reflect a payment was received, resulting in a past-due account. The reference or confirmation number provided to the customer on a receipt will allow you to find the transaction in the database to confirm the details of the payment.

Paid Date

Similar to the reference/confirmation number, the paid date will tell the customer the date and time the payment was made.

Payment Method

The receipt should also contain the method in which the payment was made. (For example, credit card, cash, check number, etc.)

Amount Paid & Outstanding Balance

The receipt will need to indicate the amount that was paid so that the customer has proof the correct amount was received and applied to their account. This will also let the customer know if there is an additional balance due to make the account current.

Conclusion

Running a successful service business will require you to bill customers and collect payments, so it is imperative that you know the difference between issuing an invoice and issuing a receipt. We are hopeful this article helped clear any confusion you may have had about the invoicing process.