Invoice vs Receipt: Key Differences You Need to Know

Managing and updating accounting documents is imperative for every business as it provides a better understanding of the ongoing financial condition. Businesses selling goods and/or services necessitate the generation of a transaction record. The record can be either an invoice or a receipt based on the situation. Although receipts and invoices are documents for recording financial transactions, they have largely different meanings and purposes.

What is an Invoice?

An invoice or a sales invoice is a record generated when a business provides goods and/or services before receiving payment. Invoices become bills upon reaching the customers. They are requests for payment sent over mail or delivered by hand. An invoice typically includes the following:

• Business details and contact information
• Client contact information
• An invoice number
• Billing date
• Due date
• List of products and/or services and their prices
• Taxes, discounts, or additional fees
• Total amount due
• Payment terms

Purpose of an Invoice

Although different types of invoices are generated by businesses for different purposes, mentioned below are some of the major purposes of issuing invoices:

• To request payment against the products and/or services provided
• To successfully operate a business by ensuring smooth cash flow
• To speed up the payment process and accurately record buyer-seller transactions
• To notify the customers about the due amount and payment deadline
• To track current sales and estimate future demand.

What is a Receipt?

A receipt is a document generated by a business that proves the completion of payment by the customer. It is issued after the seller has received payment against the provided goods and/or services. Receipts also ensure smooth returning or exchanging of purchased items. A receipt typically contains the following:

• Business details and contact information
• Client contact details
• List of products and/or services along with their prices
• Total amount paid
• Date of sale and payment

Purpose of a Receipt

• To notify the customers that their payments are received
• To track sales and additional expenses
• To recover any lost invoice income or present in a tax audit
• To file financial reports and plan future expenses
• To aid customers in reclaiming VAT on specific purchases and ensure smooth purchase return or exchange processing

Invoice vs Receipt