Business owners come across many documents during the course of running a business.
Two of the most common documents issued by a business are invoices and receipts.
It’s important for every business owner to have a clear picture of what each document represents and the key differences between the two.
What is an invoice?
Invoices are used by businesses to initiate the payment process with their customers.
A business offers goods or services in exchange for payment from its customers.
An invoice is a statement sent by the seller to the customer to let them know how much they owe for the services delivered or goods purchased.
Invoices are often used by business owners who sell services or goods on credit.
Even though invoices are mostly standard documents, they can be customized and may vary among different businesses.
Invoices typically include the following information:
- The word ‘invoice’
- Unique invoice number
- Business name and address of the seller
- Name and address of the buyer
- Date invoice is issued
- Date the itemized list of products purchased or services were delivered
- Description of products purchased or services delivered
- Cost per unit and total item cost
- The total amount charged including the amount of sales tax
- Payment terms and payment due date
- Conditions and terms of late fees
Invoices are useful for accounting cycle purposes and in keeping track of a business’s inventory and sales.
The above example shows how invoices differ from receipts.
The invoice provides a section to detail the goods and services provided, along with the amount owed, the payment terms, and the date the payment is due.
The provider sends the invoice to the buyer as a way of requesting payment.
Once the invoice has been issued to the buyer, it is then the buyer’s responsibility to submit their payment according to the terms outlined on the invoice.
What is a receipt?
Sales receipts are issued by the seller to acknowledge that payment has been received from the customer.
A payment receipt serves as proof of payment.
Receipts are often used by customers to claim a refund or make an exchange if the service or good didn’t meet their expectations.
Receipts typically include information such as the following:
- Date of payment
- The associated invoice number
- Receipt number
- Business name and address
- Customer name and address
- Amount paid
- Payment method
- Terms of sale
Receipts are used to help sellers file their taxes by claiming their business expenses as deductions.
On the receipt sample above, you will notice the section for the amount paid, the date of payment, and the payment method.
These are sections that you wouldn’t find on an invoice.
Brick-and-mortar businesses typically issue printed paper receipts while e-commerce businesses are more likely to send digital receipts or electronic receipts.
What are the differences between an invoice vs receipt?
1. When the document was issued
One difference between an invoice and a sales receipt is when the two are issued.
A sales invoice is generated before payment is made, and a receipt is generated after payment has been received.
2. The purpose of the document
Invoices and receipts serve two different purposes.
An invoice is generated by the seller and is used to request payment for the goods purchased or services rendered.
Receipts are used as proof that payment has been made by the buyer.
From a business perspective, an invoice is used to track the sale of services or goods, and from the client’s end, an invoice details the amount owed and when the payment is due.
A receipt from the business end indicates the total amount paid and the payment method.
From a buyer’s standpoint, the receipt shows how much they paid for the services or goods.
A business is legally required to include more information on an invoice than a receipt.
Why are invoices and receipts important to businesses?
Invoices and receipts are both equally as important to businesses because they help keep the books (i.e. receipt books) updated and accurate during the accounting process.
Tracking invoices and receipts provide the business owner with an overview of income and expenses.
It’s also a huge help during tax time, and if the business is ever audited, all of the payments will be located in one place.
Invoices and receipts from previous years are also helpful when budgeting and planning for the future since you can compare data throughout the years.
Another major benefit for small business owners is that this information helps claim deductions for tax purposes.
Organizing receipts and invoices make it much easier to come up with the amounts to claim, which will save you money on taxes.
How can Shoeboxed help keep track of invoices and receipts?
An easy way to organize and scan receipts is to use a service that sorts receipts automatically into different tax categories.
Shoeboxed can scan receipts and then store them electronically in a Shoeboxed account.
Shoeboxed’s algorithm then automatically assigns them a tax category.
Custom categories can be created to assign receipts to business-specific categories.
During tax time, Shoeboxed’s expense report feature can be used to export category totals and relevant receipts.
This takes a lot of pressure off of the business owner when tax time rolls around and is a much more efficient way to manage company receipts.
Frequently asked questions
An invoice should not serve as a receipt since an invoice requests payment and a receipt is proof that payment has been made.
You should always provide a separate receipt once the customer pays for the goods purchased or services rendered.
An invoice does not provide proof that the services or goods purchased have actually been paid for, so an invoice should not be used as proof of payment.
An invoice is used as a way to collect payment from a customer.
The only proof that invoices provide is that services or goods have been requested or of an outstanding formal agreement between a seller and a buyer.
A receipt is a form of documentation that the services provided or goods purchased have been paid for, resulting in the completion of the business transaction.
Invoices and receipts serve different purposes during the sales process.
While both are a means for collecting payment in exchange for services or goods, invoices are used to request payment while receipts are proof that the services or goods have been paid for.
Caryl Ramsey has years of experience assisting in different aspects of bookkeeping, taxes, and customer service. She uses a variety of accounting software for setting up client information, reconciling accounts, coding expenses, running financial reports, and preparing tax returns. She is also experienced in setting up corporations with the State Corporation Commission and the IRS.
Shoeboxed is a receipt scanning service with receipt management software that supports multiple methods for receipt capture: send, scan, upload, forward, and more!
You can stuff your receipts into one of our Magic Envelopes (prepaid postage within the US). Use our receipt tracker + receipt scanner app (iPhone, iPad, and Android) to snap a picture while on the go. Auto-import receipts from Gmail. Or forward a receipt to your designated Shoeboxed email address.
Turn your receipts into data and deductibles with our expense reports that include IRS-accepted receipt images.
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