Invoice vs. Receipt - What is the Difference?

Businesses of all sizes in diverse industries require the use of invoices and receipts for crucial financial documentation. What is the difference between an invoice and a receipt? What are the unique elements of an invoice? What makes a receipt different?

Both invoices and receipts are related to payments made to a business for its products or services. In this article, we will discuss what invoices and receipts are, the similarities and differences between them, and which should be used when.

Invoice vs receipt image

What is an Invoice?

An invoice is a request for payment. It is a commercial document sent to a client by a service provider. Invoices specify the services or products offered, the amount to be paid and the payment terms. It is a “sales invoice” to the sellers, while it is a “purchase invoice” to the buyers. These can be issued either through paper or electronic transmission. Many businesses today prefer issuing and receiving invoices electronically due to the benefits such as cheaper production costs, flexibility, and information privacy for all parties.

Invoices are essential for maintaining financial records for both buyers and sellers of products or services. Many different types of industries use invoices (e.g., construction, manufacturers, printers, publishers, and professional services such as agencies and legal firms). Invoices are a means for direct finance, which gives it an advantage in the confidential arrangements between private businesses. Finally, invoices also act as reminders of payments owed from buyers to sellers.

What is a Receipt?

A receipt is proof of payment for any products or services that have been obtained. It lets whoever made the payment know the total amount they paid. This proof of payment is particularly useful for tax documents to keep track of payment for goods or services. A receipt typically includes a list of the purchased items, the name of the business you bought it from, the business's contact information, and the price. A customer can also show a receipt to a business for a refund if the product is not what they expected. Receipts also contain a sales tax for the items bought, which depends on the state you live.

Some receipts also have advertisements for products or special deals. For example, some businesses with loyalty programs print out the amount of reward points a customer has when issuing a receipt. As a result, receipts can be useful in marketing relevant products or services. They can also list any warranties, return deals, and coupons the business provides. Retailers are legally obliged to offer the receipt to the customer, or at the very least, give them the option to get one.

Difference Between an Invoice and a Receipt

Simply put, an invoice is a request for payment, while a receipt lets you know a payment has been made. The total amount of payment should be made clear for both an invoice and a receipt. A business owner uses both an invoice and a receipt to keep track of transactions.

Here are a few examples of how to use an invoice and how to use a receipt to illustrate this further.

Invoice Example

Suppose a design agency is hired to perform a specific task for a client, for which they are to receive an upfront payment and a payment upon completion. The agency then uses invoices to communicate the amount owed to the client at each of the stages: prior to commencing work, specifying the amount due at that point, and then at the end, for the remaining amount.

Invoices can have payment methods integrated to them. Digital invoices with the option to pay via PayPal (such as the ones you can send with Hiveage), have a button that allows the client to make a payment online. This requires the vendor to have a PayPal account linked to their invoicing software. The client can then make the payment directly on the invoice itself.

Invoices must contain all the essential details for making a payment: the business names of the client and vendor, contact information, billing information, description of the goods, and a due date. There are templates online you can use to help write a professional invoice, such as our free online invoice generator: you can simply fill in the fields with the necessary information, and an invoice will be created for you.

Receipt Example

If you were to go to a restaurant and order food, a server gives you a bill at the end of your meal. After you pay the total amount owed, you receive a receipt or proof of purchase. This typically takes the form of a small piece of printed paper which lets you know a payment has been made.

This example also shows why a bill is not an invoice. The server at the restaurant gives you a bill for immediate payment. It is afterward that you get a receipt. An invoice lets a business know money is due, and they have a certain amount of time to make the payment.

The bill and receipt combination is especially useful for credit card purchases, as they are proof against unauthorized purchases. Whenever you use a credit card, make sure you have a receipt for what you have purchased. That said, do not use credit card statements as proof of purchase: you can organize your taxes better with receipts.

When to Use an Invoice vs. a Receipt

Another way to understand invoices and receipts is as follows: when there is a payment required for goods or services, the invoice is what happens before the payment, while the receipt is what happens after the payment. In other words, after sending an invoice, you expect to get paid; if you send a receipt, that means you have already been paid.

As previously mentioned, many industries use invoices as an effective financial tool for payment. They not only keep track of necessary information but also keep tabs on current business transactions. But receipts can also serve in making financial predictions, such as forecasting future sales through the use of historical data. Finally, both of them are useful for tax purposes since the IRS looks at them for information.

Importance of Receipts for a Business

Receipts are an important means for tracking a business’s sales and revenue with accuracy. This is especially true for tax returns and documentation of the business operations. The Internal Revenue Service uses receipts for this express purpose. In larger businesses the receipts are maintained by the accounting department for preparing financial statements.

Receipts are also a way to record purchases you make on behalf of your business, so that you can be reimbursed properly.

Can an Invoice Serve as a Receipt?

No, an invoice is not interchangeable with a receipt. Remember, an invoice is a request for payment, while a receipt is documentation of a payment. If you need to return an item to a business due to poor services, you do not show the invoice you have received, you use the receipt to request a refund of your original payment.

Is an Invoice a Proof of Purchase?

Again, invoices do not function as payment receipts. Proof of purchase is evidence a customer buys a product. It is especially useful for any sales or rebates businesses use. An invoice does include details of how much cash you expect in payment, but it is not proof of purchase for anything.

Retailers have different means of accepting proof of purchase. Some use reference numbers, while others use confirmation emails sent to them. Either way, receipts are the most effective means of proof of purchase.

What is the Meaning of Invoice Copy?

An invoice copy is an itemized version of the original. This can be in digital form or on paper.

An invoice should have a number on it for identification purposes, and the copy will reflect this. The invoice number is what a business uniquely assigns each invoice. The invoice number is often alphanumerical.

Invoices also specify the date and the contact information of the particular business that issues them, which allows you to date the invoice and the goods or services of the business. You should always maintain copies of the invoices you send or receive to keep track of your financial transactions.

What is a Proper Receipt?

A proper receipt records the name, address, and phone number of the business offering it, and the amount of payment received for the list of products or services. There should also be a date the transaction took place. The most crucial information of a receipt is the amount paid.

You should always keep a copy of any receipt for the items you purchase. They are lightweight pieces of paper if you print them, but you can often get them via text or email too. Some businesses give you this option at the register, where you can enter a phone number or email address. A proper receipt has all the necessary information you need for recording the purchase.

You can use proper receipts for tax reasons. If you need to claim a possible deduction, you can use your receipts as proof of purchases. They monitor all your deductible expenses so you can separate taxable and non-taxable income for you and your household. The next time you prepare a tax return, make sure to use these receipts for extra benefits. It makes it much easier to prepare a financial statement for your taxes.

Conclusion

We have discussed the differences between invoices and receipts: an invoice requires you to send a notification of payment beforehand, and the other documents the payment afterward. An invoice is not a receipt, but invoices do provide information necessary for making a payment. An invoice is an effective means of communicating due payments to clients. Receipts have their use in the proof of purchase, which is always useful with tax refunds and deductibles. It is imperative to understand these differences so you can properly manage your financial records in a way that is safe and secure.