Invoice vs Receipt: What's the Difference?

Saphia Lanier -

In business, there are a lot of terms that are used interchangeably -- or worse -- misused. Not knowing them and what they stand for could land you in hot water financially.

For example -- not understanding the difference between an invoice and a receipt.

When it comes time to do your taxes, you'll need to have your receipts on hand to prove your business expenses. Without them, you could end up penalized and fined.

So to protect yourself, we put together this guide to help you understand the difference between invoices and receipts.

Let's get started.

What is a Receipt?

A receipt is a proof of purchase. Some businesses provide a slip of paper, while others print a page (sometimes more) to showcase your order and what you paid.

The purpose of a receipt is to prove you bought a product or service from a particular business.

So you'll receive it at the point of sale, such as at the cash register of a restaurant or grocery store. It's essential to keep your receipts when you want to prove a purchase you'll write off as an expense on your taxes.

Businesses that Use Receipts

It's common for receipts to be used by businesses that require advance payment before providing a product or service. For instance, a gas station will require you to swipe your card in their machine before you can begin pumping.

Street vendors and just about any store you go to will operate in this fashion.

Details Included On Receipts

Besides including details about your purchase, such as the item and the amount, you'll also find other key information on receipts. For example, the name of the business, it's address, phone number, and store number.

If you go to a franchise, there are store numbers assigned to each to keep track of which one you purchased from.

It'll also include your form of payment, such as cash or credit card. If you paid with cash, it'll show the amount you gave and any change you received in return.

On the other hand, if you paid with plastic, then it'll show what type (i.e., MasterCard), and will show the last four digits of the card used.

Receipts don't contain too much of the customer's details to prevent identity theft. This is especially important since customers tend to throw away their receipts or leave them behind.

If there's a name on the receipt, it likely belongs to the cashier that took your order.

Receipt Format

There's no standardized format for receipts, however, most will contain the same information and in a similar style.

For instance, you'll find the business name and details in bold and centered at the top. This is followed by the items purchased, the total, and payment method (and change if applicable) in the bottom right.

Of course, receipts differ around the world, so it all depends on where you are.

It's safe to say that most receipts are printed out. Yet, there may be some smaller businesses, farmer's markets, and flea markets, that use handwritten receipts.

What Are Invoices?

An invoice is a document you create as a business to request payment from a customer. Another term for an invoice is a bill.

Some businesses mail these out, while others use an electronic means to send them.

Like a receipt, it will contain information about the seller. But it'll also include sensitive details about the buyer. The purpose of an invoice is to let a customer know how much they owe a merchant.

When Do You Use an Invoice?

There are various circumstances when invoices are used by businesses. For example, if you order a product or service online, then you'll likely receive an invoice via email.

It's also common for suppliers to send invoices to customers that order from them over the phone or on the web.

The invoice acts as proof of an order and details what's owed and by who. It's common for invoices to be used when a business provides a product or service in advance of payment.

When Do You Pay an Invoice?

Unlike with receipts, invoices allow you to pay for a product or service in the future. Receipts reflect a purchase you've already completed.

The business sending you the invoice will determine how long you have to pay. Some companies require payment upon receipt of the invoice.

Then there are others that'll allow you to pay off the invoice within 30 days (or even 60 days). These terms are known as Net 30 and Net 60. It all depends on the industry and the company you're purchasing from.

Some may give you a week or two instead of an entire month. The due date will appear on the invoice, so the customer is aware.

What Details Are On Invoices?

In an invoice, details about the seller and buyer are present. Most are formatted similarly, with the seller's details in the upper corner of the page.

This will include the business's logo, name, address, phone number, and email address. Then the same information (outside of the logo) is provided for the customer.

You'll typically find this on the opposite side of the seller's information.

The invoice also provides details about the products or services bought. It includes the name, as well as a description of each. And next to the items, there's a rate and the number purchased.

Then at the bottom, there's a subtotal for everything.

Invoices contain other details, such as discounts or fees applied, the due date, the date of the invoice, and payment methods accepted.

In the European Union, businesses are required to format their invoices in a specific way. This is a legally mandated format that companies must adhere to. And if they don't, then their creation isn't considered an invoice.

The details you must include in an invoice according to the EU include:

  • The invoice date
  • VAT ID number of customer
  • Company name
  • Customer name
  • Details about products/services
  • The delivery method for the product

There are tools you can use, such as invoicely, which make it easier to create professional, legally-binding invoices.

Other Things to Include On Invoices

It's not uncommon for companies to use their invoices as marketing tools. So you'll find other information on their invoices, such as a coupon they can use for their next order.

They may also give a discount if you pay your invoice within 10 days.

Then if a product was shipped, then the seller will sometimes include the shipping company info and tracking number.

Which Businesses Use Invoices?

You'll find that invoices are commonplace across industries. Just think of any provider that gives you something and then expects you to pay.

For instance, your water bill, electric bill, or cable bill.

Other businesses that use invoices include:

  • Restaurants
  • Online web services
  • E-commerce businesses and individual sellers
  • Doctor's offices
  • Dentist's offices

And the list goes on. After you pay an invoice, you'll receive a receipt to prove you completed the purchase.

Should Businesses Keep Invoices?

We discussed how businesses can use receipts for recordkeeping during tax season. You should do the same for invoices.

Keeping your invoices on hand allows you to keep track of all the sales you've made. Plus, you can see which are pending or late.

Your finance department will need the invoices to keep track of your income, which may come in handy when it comes time to do your taxes.

This is one of the reasons why many businesses now use electronic invoices. The platform comes with a dashboard you can use to see all of your invoices in one place.

This includes pending, paid, and late invoices. All of your sales are recorded so you can keep watch of your revenue. Plus, you can include expenses for services you provide, so this too is recorded.

An Overview of the Differences Between Invoices and Receipts

So what are the main differences between receipts and invoices? Here's a quick breakdown:

  • Receipts come after the sale vs. Invoices come before the sale
  • Receipts are proof of payment vs. Invoices demand payment
  • Receipts acknowledge payment vs. Invoices keep track of goods/services sold
  • Receipts go to the customer or 3rd party vs. Invoice goes to the customer

The similarities are there, but knowing the differences is key to organizing your business finances efficiently.

Get Organized with E-Invoices

Now that you understand the differences between invoices and receipts, it's time to implement e-invoices to simplify your finances.

With digital invoices, it's easier to create, track, and get paid for the products and services you offer. Your customers can pay you online right away using a credit or debit card or payment portals like PayPal and Stripe.

You get all of this and more with invoicely. So sign up for free today to see how well it works for you!