As a business owner, you might have come across the terms invoice vs receipt. However, differentiating between these documents can be pretty confusing.
Invoices and receipts are both fundamental elements of the sales process, but they differ in their basic functions.
The present article is dedicated to clarifying the notions of invoices and receipts, indicating the main different between them, and specifying the most important details that should be on these documents.
Content Outline
What is an invoice?
An invoice is a document generated by the business once it’s time for the customer to pay for the supplied goods or services. It’s an official document for payment and also a proof of sale for the business.
Since invoices are legit business documents, there are obligatory invoice fields that should be on them. This involves your business and customer’s name and address, the invoice number, the date of issue, the due date of payment, a list of the goods or services sold and the total amount due.
If your business is registered for sales tax, you will need to issue a tax invoice with other tax information provided.
Invoices are generally issued immediately after the goods or services have been provided, and before the payment is received. On the other hand, the invoice can be issued after the payment has been received as well.
What is a receipt?
A receipt is a written document the business gives the customer after the customer has paid for those items or services. It works as a proof to both your business and customer that payment has been made.
The recipient receipts have to be correctly indicated with your business details, the payment date, the amount paid, and any remaining balance.
For each and every receipt from a customer, it is crucial to create a receipt to inform the customer that the payment has been successfully received. This includes the option to pay either in installments or with a down payment.
Difference Between Invoice and Receipt
While an invoice is used to request or demand a payment from the buyer, a receipt is a record of a payment received by the seller. A receipt is given at the point of sale after the customer has paid the bill, whereas an invoice is meant to be sent before the customer sends the payment. The invoice is actually a request for payment, and the receipt confirms the payment has been made already.
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At the same time, the nature of the documents plays a role since they may require different kinds of data. The invoice needs to have a column for breakdown of the products and services and the payment receipt just needs to show the amount received and any balance due. Both documents must have the phrase “Invoice” or “Receipt” explicitly written on them.
Is an Invoice a Receipt?
An invoice and a receipt play a dual role in financial transactions – invoice is used to bill a customer while receipt is meant for documentation purposes. With an invoice, the seller sends the buyer a bill, requesting for the payment to be made. It minutely outlines the products/services offered, their quantities, prices, and the tenure of their availability. This document lays the foundation for the purchaser’s obligation to pay off the amount owed.
On the other hand, a purchaser is given the receipt by the seller immediately after the payment is effected. It is done as an indication of the finished transactions, and the acceptance of the payment for the products or services described in the invoice.
Although both documents are necessary for financial records, they act in different phases for the transactions. An invoice is a document that initiates the transaction as it states the conditions of the sale, and in turn the receipt closes the transaction by confirming that payment has been made.
Generally, an invoice comes before the payment process is being carried out, while the receipt comes at the end of the process, therefore, these two documents are closely related, but they are distinct parts of the sales cycle.
Should I issue both an invoice and a receipt?
It is a question of whether you offer both an invoice and receipt or just a particular one that depends on your business and customers’ needs. Here are some factors to consider:
Clarity and Transparency: Providing both these papers does not only well establish the rapport between the two parties but also guarantees the success of the deal. The proforma invoice contains all the details of the products or services provided and the amount due, which is endorsed by the payment receipt that indicates the payment has been made.
Customer Expectations: In such case, the customer is likely to desire having an invoice and a receipt for future records. By doing this, one will be able to give the customer both document which will serve as a source or confirmation for the financial records, as well as reconciliation with the tax authorities.
Legal and Accounting Requirements: In some cases, a receipt would be required as well for the legal and accounting reasons. In some organizations, the issuance of both an invoice and a receipt might be legally or logistically required. Check with your local jurisdiction, or you may want to seek the advice of your accountant to make sure you comply with regulations
Convenience and Efficiency: Bringing the invoice and the receipt together in one document (an invoice-receipt or payment receipt) will make your customers and you do your work in a quick manner. It eliminates paperwork, and paperwork is replaced by simple record keeping.
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