Invoice vs. Receipt – How Are They Different?

Last Updated November 30, 2023

Managing your paperwork is one of the less exciting aspects of running a small business — but it is also one of the most important. An efficient invoicing process can make all the difference for your cash flow and can help you achieve your growth goals.

However, many small business owners find themselves confused about the difference between an invoice and a receipt, especially since both terms are used in relation to receiving payments from customers.

Read on as we break down invoice vs. receipt basics so you can understand how to use these items in your business.

What Is an Invoice?

An invoice is an itemized document that a business sends to its clients detailing how much they owe for delivered goods or services. They may be issued for a single sale (such as the bulk purchase of equipment) or for recurring services (like graphic design work).

In its most basic sense, an invoice is a request for payment. Invoices are usually personalized and offer a set timeline for receiving payment from the client. Unlike a bill you’d receive when shopping at a big box store in which payment is due on receipt, invoices provide a billing cycle that allows for a bit more flexibility as to when a client will submit payment. Common payment terms include EOM (end of month), Net 30 (payment is due 30 calendar days after the invoice date), or PIA (payment in advance).

Because of this, invoices are typically reserved for B2B sales, where payment isn’t necessarily expected at the time of purchase.

What Is Included in an Invoice?

Your invoice must include several important points of information for your own accounting purposes and to avoid confusion with your client.

Your invoice should include the following:

• Your company’s name and contact information
• The client’s name and contact info
• A unique invoice number and issue date
• List of goods or services provided, along with delivery date, cost per unit, and total item cost
• Total amount owed by the client, including taxes (when applicable)
• Payment terms, which dictate the invoice due date
• Acceptable payment methods

Essentially, your invoice should tell the client everything they need to know to submit payment for the work you’ve completed for them.

Why Are Invoices Important?

An invoice serves more functions than just requesting payment for the work your business provides for its clients. We’ve listed some of the most prominent reasons why invoices are important below.

Record Maintenance

An invoice provides a record of your sales and income. This can help you track the overall health of your business, from monitoring cash flow to identifying the work that is having the greatest impact on your growth goals.

Payment Tracking

Invoice tracking software like Quickbooks lets you track the status of the invoices you’ve issued to your clients, making it easier to identify and collect unpaid invoices so that you get paid for the work you’ve completed. You can also track the invoices that you owe to other businesses to maintain healthy cash flow.

Tracking Client Trends

Invoices can also be used to track trends with your clients. For example, you might identify certain products or services that are more popular with your clients, periods of peak demand, and other factors that can help guide your overall business strategy.

Legal Protection

Finally, if there is ever a dispute between you and a client regarding how much they owe, your invoice serves as clear documentation about your payment agreement. This can protect you from fraudulent lawsuits and aid you if you need to engage in legal proceedings to receive payment.

What Is a Receipt?

A receipt is a document that a seller issues to acknowledge they have received payment from a client. Receipts are only issued after payment has been received, since they are proof of payment. Receipts are issued for both B2B transactions and everyday consumer purchases.

What Is Included in a Receipt?

Most customers are used to getting receipts during everyday transactions, like shopping at a grocery store or eating at a restaurant. Similar receipts are issued after a client pays for an invoice, though they may be more detailed than the basic customer receipts you’re used to seeing.

A receipt from a B2B transaction should include the following:

• Payment date
• Supplier and customer information
• Invoice number on receipt
• Total amount paid (this may also indicate whether the client paid the full amount or just a partial amount from the invoice)
• Payment method
• Additional sale terms (such as refund policies)

Some receipts will list the individual items that were included on the original invoice, though many do not. Typically, your business will issue a receipt to the client for their own records, while also keeping a copy for yourself to track payments received.

Why Are Receipts Important?

In the context of “invoice vs. receipt,” a receipt is basically the second part of a two-step process for tracking the money you earn from your clients.

1. Proof of payment

While the invoice is your request for payment, the receipt shows that payment was actually made. This helps you track which invoices have been filled, and which ones are still awaiting payment. A receipt serves as legal proof that payment was made for specific goods or services.

2. Accurate tax filing

A receipt shows the payments you actually received — which is the information that matters most when filing taxes. This ensures that your business income is accurately reported so you pay the right amount of taxes. Keeping receipts for invoices that you paid can also be used when you need to claim business expense deductions.

3. Streamline client refunds

Clients are responsible for keeping their own copies of receipts. If a client demands a refund or return, the receipt ensures that you provide the proper refund amount. This can also protect you from fraudulent refund requests if someone requests a refund for something they never paid for.

Invoice vs. Receipt

Is an invoice the same as a receipt?

The short answer is no. However, they are part of the same process, which is where some of the confusion can come in. Understanding the basic invoice vs. receipt differences can help you know when to send an invoice or receipt to your clients.

Differences Between Invoices and Receipts

The primary difference between an invoice and a receipt is when and why the document is sent. According to Young Pham, co-founder of BizReport, a finance and business publication, “The biggest difference between an invoice and a receipt is that, while invoices are often used to request payments for products or services rendered, receipts are typically used to confirm that, indeed, a payment has been made.” With this in mind, an invoice is sent prior to payment, and a receipt is sent after payment has been processed.

	Invoice	Receipt
Primary purpose	Request payment	Proof of payment
When are they sent?	After a business completes work — usually just for B2B transactions	After a customer submits payment, commonly used in both B2B and B2C transactions
Are they mandatory?	Not technically mandatory, but highly recommended	Receipts are mandatory anytime you receive payment
Additional Uses	– Track paid, pending, and overdue payments from clients – Track sales, inventory, and services rendered	– Can be used by clients to request refunds or replacement products – Used to prove business income and expenses for tax filing

Similarities Between Invoices and Receipts

While there are several differences between invoices and receipts, there will naturally be a few similarities that come from them being used for the same transaction.

For example, basic information such as the name of the client and the total amount owed will be the same on both the receipt and the invoice. The same invoice number should appear on both the invoice and the receipt to ensure proper tracking and documentation.

Both invoices and receipts are essential for your business’s record keeping. By using these documents together, you can easily track which payments have been filled and which invoices are still awaiting payment. Your accounting team can use both documents to manage your cash flow and ensure that you fulfill your tax obligations.

The main similarity is that it’s a good business practice to issue both an invoice and a receipt for all B2B transactions. This ensures that both you and your clients will be able to track payments and avoid any misunderstandings or other concerns.

Related: Invoice vs. Purchase Order

FAQs

Is an invoice a receipt?

No. An invoice is the document sent by the business to its customers to request payment. A receipt is generated after the client has paid the invoice.

Can an invoice be used as a receipt?

Sometimes. An invoice is usually just used to make payment requests. Receipts are generated by the seller after the client has made a payment. However, some B2B businesses will send a “paid invoice” rather than producing a receipt. These documents are updated invoices that show payment was received, and that the remaining balance on the invoice is now zero.

Is an invoice a proof of purchase?

No. Even if an invoice indicates “payment due on receipt,” it is not a proof of purchase in and of itself, since it is only the request for payment. Only a receipt or a “paid invoice” can serve as proof of purchase, as this records when the payment was actually submitted by the client.

What is an invoice number?

Each invoice has an invoice number, which is a unique number assigned to each invoice that act as an identifier for tax and accounting purposes. Invoice numbers also help bookkeepers easily track past customer payments and manage overdue invoice payments.

When should I send an invoice vs. sales receipt?

Send an invoice after you have completed work for, or have sold goods to, a client and are ready to request payment. Only send a receipt after you have been paid for the invoice.