Invoice vs Receipt: What is the difference?

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.

What is an invoice?

A valid invoice is a commercial proof of purchase which lays out and records a transaction between a buyer and a seller at the time of purchase. When some goods or services were purchased on credit, the invoice specifies them and provides information on the available payment methods. There are many kinds of invoices which are a paper receipt, a bill of sale, a debit note, a sales invoice, or an online electronic record. An invoice is generally issued immediately after the goods or services have been provided, and sometimes, it can be issued 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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6 Payment Methods for Paying An Invoice

Once the invoice is received, the next action is to settle it before the specified date. The seller will have to specify the method of payment and payment terms in the invoice. Each option of payment features its own setup procedures which could impose extra fees to either party of the transaction. These factors should be considered when deciding on a payment option for your company and before the selection of the payment method. Here are six payment methods that can be considered:

1. Cash Payment

A cash payment request, is a mutual action plan between the payer and the payee. One can get cash either by attending a meeting in a predefined place or by post. Digital payment systems have succeeded in rendering cash as a safe option because of the associated risk of loss or theft.

2. Pay by Check

Moreover, checks usually require a meeting that is scheduled in advance and/or mailing to the recipient. Given the growth of quicker digital payment channels, this method is also on the decline since it is more time-consuming than the new payment methods. Another check is also exposed to cancellation or forgery risks.

3. Credit/Debit card

It’s much more convenient and safes to pay with a credit card or debit card. Mostly it will be indicated by the seller whether the cards can be used. For example, you can be redirected to a payment page which is protected by a secure gateway that guards your information. Perhaps the biggest disadvantage of the credit card payment option is the extra cost of credit card fees charged by the card company.

4. Wire Transfer or Bank Deposit

Sometimes, the vendor could even ask for direct bank deposit to an account. The bank account details should be written down on the invoice, if this is the most convenient payment option. Domestic wire transfer is the most popular payment tool in the national market. There is often a local bank system that assists in money transaction of this type. But, a transaction fee might also be imposed due to currency conversions and international transfer handling costs when doing cross-border payments.

5. Online Payment

Online payment is, as a rule, made possible by third-party providers such as PayPal, Apple Pay, Statrys, Venmo (USA), WeChat Pay (China, Hong Kong) and Payoneer. Transaction processing of this type of payment is usually subject to fees from third parties.

6. Automatic Bill Payment

Another way to pay an invoice is by setting up an automatic payment. This kind of payment request causes both the buyer and the seller to concur on the amount owed and the timeframe for the subsequent payment. The payer can do so by splitting the single monetary transaction into more manageable and controllable chunks for the customer. It is also a good choice for businesses that make their customers come for their recurring orders.

A standing order can be given for automatic bill payment on a regular debit basis or a recurring payment arrangement to pay invoices. Recurrent payments can be preset at a fixed or a changed amount. A receipt should be sent to the customer for every payment which has been cleared by the system.

Types Of Payment Terms

The payment term has to be mentioned while issuing an invoice. Setting payment terms establishes expectations while also making the customer relationships even more professional and efficient. Once you have gotten these payment terms, you can use various ways of accepting the payment methods. Here are several payment terms you can consider:

Prepayment

Advance billing will help you to improve your cash flow as well as get your money and limit the chance of loss. For instance, a business providing event photography services may want to minimize the chance of cancellation by requesting full payment before the event. Prepayment can be a great advantage for businesses, so some companies incorporate discounts for customers who pay in advance.

Partial Payment

You can decide to demand only a partial payment of the customer’s total payment. Numerous times this may be the source that gives your business the working capital needed to finish a customer’s project or the benefit in the form of increased sales and higher order value for your business They could also help your customers in that they could break down the costs into smaller portions, which could be easier for them to manage.

Installment Agreements

You can also make installment payments. Certain corporations develop installment contracts according to time, say every three months or completion of project milestones. You may opt to split the customer’s total cost into a couple of smaller monthly payments. For vendors, services like Afterpay are now possible where customers can buy something and pay it off later over several months.

Lines of credit

A line of credit allows buyers to finance the products they need and pay back the balance on the agreed payment plan. The business line of credit can also pose a certain level of risk as it is possible for the customer to default. This approach is often used by large corporations but can be also used by small businesses.

Immediate Payment

Immediate payment means a transaction for which payment should be made as soon as the goods are received or as soon as services are provided. Some might put in the contract that you have the right to retrieve goods if the customer fails to pay on immediate payment. On the other hand, immediate payment is not always possible for every type of business or transaction.

Net 7, 10, 15, 30, 60, or 90

These terms say the number of days within which money should be paid. Another example would be net 60, which means that a customer should settle their account within 60 days of the date marked in their invoice statement.

This strategy of net payment terms may not be so convenient as you may have the project already done without the receipt of the income. Hence, customers may be even more accepting of these terms. You will have to accommodate a time that will suit both you and your client.

Subscriptions And Retainers

The subscription and retainer payment terms demand the clients to pay on a regular basis either monthly or annually. Generally, when a client had put a business on a retainer agreement, such businesses usually billed the clients at regular intervals. Utilizing invoicing automation for recurring payment management could be helpful in such situations.

Ensuring Smooth Invoicing and Payment Process

How FastLane Group Can Help?

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