As a business owner, you’ve likely heard of the terms ‘invoice’ and ‘receipt’. However, the difference between these documents isn't always clear. Invoices and receipts are both documents that are issued during the sales process, but they each have different functions.


In this article you will be going to know about:

What is an invoice?

An invoice is a document issued from a business to a customer once it’s time for the customer to pay for the provided goods or services. It’s an official request for payment and also acts as proof of sale for your business.


Since invoices are official business documents, there are mandatory invoice fields that need to be included in them. This includes your business and customer’s name and address, an invoice number, the date of issue, the payment due date, a breakdown of the goods or services sold, and the total amount due.

 

Invoices are issued after the goods or services have been provided, but before the payment has been received.

What is a receipt?

A receipt is a document issued from a business to a customer after the customer has paid for items or services. It acts as proof of payment for both your business and the customer.

Payment receipts should include your business details, the original invoice number, the date of payment, the amount paid, and any remaining balance.

Any time a payment is received from a customer, a receipt should be issued. This includes deposits or partial payments.


The difference between an invoice and a receipt


Invoices and receipts have different purposes as they’re issued at different stages of the sales process.

  • Invoices are issued prior to the customer sending the payment, whereas a receipt is issued after the payment has been received. 
  • The invoice acts as a request for payment, and the receipt acts as proof of payment.
  • Each document requires different information. The invoice should include a detailed breakdown of the products and services, whereas the payment receipt only needs to show the amount paid and any balance due. 
  • Both documents should be clearly labeled as “Invoice” or “Receipt”.

Do I need to issue both an invoice and a receipt?


The answer will be depending on your industry and business structure, you may not need to issue both an invoice and a receipt.


Invoices are only mandatory if your business is registered for VAT. However, most businesses, regardless of VAT status, opt to issue invoices for business-to-business (B2B) sales to keep a thorough record of their income for tax purposes.


Receipts, however, should be issued any time a payment is received from the customer. If you’re accepting a payment that is made immediately upon providing the goods or services, you don’t need to issue an invoice, but can offer a receipt as proof of payment.


This is both for the customer's benefit, and your own. It reassures the customer that they've paid correctly and ensures your business keeps track of which payments have been made.

In some cases, like in restaurants, the customer may decline a receipt. This is also fine, but it’s important that it was offered.