An invoice, a bill, and a receipt – these are probably all documents you’ve heard about but you might not be aware of the subtle differences that make them exactly what they are. So, let’s take a look at each one so you can be clear about what documents to refer to when you need to and learn the difference between an invoice, a bill and a receipt. Have a look at our invoice definition before reading this article if you need to learn what is an invoice before reading this.
Definitions
Invoice
An invoice is an itemized list of products sold or services provided, along with the amount of money owed for each line item, and the total amount of money owed. An invoice is sent from the biller to the client, in hopes of being paid within a certain amount of time.
Bill
A bill is something you, as a customer must pay. A bill is an invoice in that it has the itemized list of products sold or services provided, along with the amount of money owed for each item, and a total amount owed. However, when you receive an invoice, you would enter it as a bill that you owe. In other words, an invoice is sent, and a bill is received.
Receipt
A receipt is different from an invoice in that an invoice is requesting payment for products or services received, whereas a receipt is proof that the services or products have already been paid for. An invoice comes before the payment has been made, while a receipt comes after the payment has been made.
Differences
So, if you are a vendor, you would send an invoice after a service has been completed and money is owed, and then you would send a receipt after you receive the payment from the invoice. On the other hand, if you are a customer, the invoice you receive is your bill, and then you will receive a receipt once you pay your bill.
Invoice is sent → Customer receives it as a bill → Payment is made → Receipt
The importance of an invoice and a bill is that it documents the services completed and/or products sold, along the with the amount owed. The vendor and the customer can use the invoice for bookkeeping purposes.
The importance of a receipt is that it serves as documentation that the products and/or services has been paid for and the business transaction is complete. The vendor and the customer can use the receipt as proof that the amount owed has been paid.
Please note that there are several different types of invoices, each for different types of services, products, and payment agreements made between the vendor and his client.
If you are handwriting your receipts, you can speed up the process by investing in carbon copy paper. This will provide two copies of the receipt: one for the vendor and one for the customer. Also, make sure you use very dark ink for handwritten receipts.
Make sure each receipt you create, or receive, includes vendor and vendee details, product or service details, the date of the transaction, the amount of the transaction, the method of payment, and signatures from the vendor and the client.
If you have to create several different receipts as a part of your business, you can always create a customized template, or there are several free receipt templates you can download online. Having a template will speed up the process, and it will ensure all of your receipts look uniform and professional.
Once you get the hang of it, invoices, bills, and receipts will become second nature to you; and they will help keep your business finances in line and organized.