Invoice vs. Receipt: What’s the Difference?
Business language can be confusing. Accounts receivable, work orders, liquidity…the list goes on. You didn’t start your service business to sit behind a computer and figure them out. Still, you need to have a basic understanding of these terms to avoid administrative and legal headaches down the road.
Two business terms you should definitely know the difference between are invoices and receipts.
Since these are two very important documents you’ll be creating for every job, we’ll sort out what they are, when to use them, and how to create your own.
Invoices and receipts have a lot in common
Invoices and receipts are legal documents that record a service or purchase transaction.
Both are created by the vendor or service provider (you) and given to the buyer (your client).
Both share similar information, such as the business’ name and contact information, transaction dates, and a description of the goods or services provided.
Both are crucial for business finances and tax purposes.
However, invoices and receipts are not the same thing.
The difference between an invoice and a receipt
The most important difference between an invoice and a receipt is that an invoice is a request for payment, and a receipt is confirmation of payment.
Invoices are issued after services are performed and indicate the total amount due. Invoices establish what you are charging for, how much is due, and when your customer must pay. Invoices are also known as bills.
A receipt is proof of payment. It is issued after payment is received indicates the total amount paid. The receipt details how much was paid as well as the payment method. Customers often keep receipts for their records to track expenses and claim taxes.
For example, imagine you’re building a deck for a client. You’ve purchased all of the materials and subcontracted two workers for a total of 6 hours of labor — all of which the client agreed to in the service quote.
Once the work is done, you write up an invoice that details exactly what labor and materials you’re charging for. The invoice tells the client that the work is done and it’s time to pay. The client pays you online, as instructed on the invoice, and you can send them a receipt for their records.
Here are a few other key differences between invoices and receipts
- Invoices have a standardized format and must include certain elements. Every invoice must include: buyer and seller contact information, the total amount due, an invoice number, the date of issue, an itemized description of goods or services, any taxes and discounts applied, the payment terms, and more. Jump to our invoicing checklist to find out exactly what an invoice must include.
- Receipts do not have a standardized format. They typically include the service provider’s name and contact information, the transaction date, the total amount paid, and the payment method. Receipts do not have to include the customer’s name or contact information. To make things easier, some businesses simply make a copy of the invoice and add the word “paid” across the invoice.
- Invoices can be issued before or after a job. For example, if you need to secure capital to order parts, you can issue an invoice after the client has agreed to your quote and collect either a deposit or the full amount.
- Receipts are issued immediately after payment is received. Receipts cannot be issued before payment is confirmed.
- Invoices are used to track future revenue. An invoice creates an ‘account receivable,’ a record of money owed to a company by its clients. Accounts receivable are listed as assets on your company’s balance sheet.
- Receipts are required in the event of a return, complaint, or warranty claim. If a client finds that the service or goods provided is faulty, they’ll be required to show their receipt as proof of the transaction.
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What’s the difference between a purchase order and an invoice?
An invoice is not the same as a purchase order (PO). Purchase orders are used by businesses that deal with physical inventory, such as fertilizer, chemicals, or parts. A PO is a written request from a buyer (typically a small business owner) to a supplier to request the delivery of goods. The PO will detail how much is needed and how the buyer will pay.
Why you need invoices and receipts for your service business
For home service businesses, invoices and receipts are crucial bits of paperwork for accounting, tax purposes, and cash flow. Invoices and receipts allow you to:
- Document income and expenses for taxes and accounting
- Keep your business finances organized in case of a tax audit
- Avoid duplicate payments
- Track down outstanding payments
- Manage and control your cash flow
- Provide a professional level of service to your customers
Pro Tip: Businesses do not need to keep paper copies of invoices and receipts. In fact, electronic versions are preferred, since they can easily be stored, backed-up, and retrieved online.
How to create invoices and receipts
The best way to create an invoice is to use an online template that includes everything you need in a simple, repeatable format. If you invoice frequently, invoicing software is a must. Invoicing software such as Jobber automatically creates receipts for you, so it’s one less step to think about!
In a nutshell, invoicing software allows you to:
- Choose a professional invoice template and add your company logo and colours
- Store all invoices, including drafts, online so you can search and retrieve them from anywhere
- Automatically convert quotes to invoices, eliminating double entry
- Load custom line-items onto your templates
- Track expenses and products used
- Automatically deliver invoices when a job is complete
- View late payments and send invoice reminders to your clients
- Get notified when a client pays online
- Automatically send receipts when a payment is approved
Now that you know the difference between invoices and receipts, you can go forward more confidently in your service business operations.