As any business owner will know, staying on top of their finances and business expenses is crucial. Business finances are not only important to keep on top of your finances but also for record-keeping requirements and tax returns. In this article we explain the key differences between invoices and receipts to ensure that you can keep on top of your finances.
Request v Confirmation
The main difference between an invoice and a receipt is that an invoice is a request for payment whilst a receipt is proof of payment. An invoice will therefore outline the payment terms, the payment method, the total amount due and the due date. In contrast, a receipt will outline the business information and the products purchased. To put it simply, an invoice is requests payment whilst a receipt confirms payment.
Receipts also differ from invoices in that they can be used to prove ownership of something or proof of purchase. Sales receipts provide evidence that the individual has purchased the product, with the date of payment evident on the receipt. Invoices on the other hand list the goods and services and acts as a proof of order.
Serving different purposes, receipts and invoices also vary in the amount of type of detail they include:
An invoice includes information about both parties (the buyer and seller). An invoice should include the vendor’s details ( business name, phone number and address) on one side and will typically have the customer’s information listed on the over.
Invoices are typically more detailed than receipts- they will list specific details of the product or service and break down costs and quantities for each purchase order. For example, if I were to purchase 10 tyres, the invoice will provide a description of the tyres, the quantity of tyres I purchased (10), the unit price (cost per tyre) and the VAT rate for each tyre before totalling the amount due.
In addition to these more specific details, an invoice should also contain:
- Payment terms (including discounts for cash or early payment and fines for late payment);
- Providing net 30 payment options, which can be a great way to win business and keep cash flowing in;
- Date of the invoice and payment due date;
- Invoice number (or identification number)
- Acceptable payment methods, and;
- VAT information (including the VAT number) where relevant.
Give the amount of information that you have to provide, small businesses often elect to use invoicing software or create their own online invoicing templates to make the process of creating and sending invoices quick and simple.
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Like invoices, receipts should also include information of the business from whom the purchase is being made, such as name and contact information. Whilst receipts must describe the product or service paid for, alongside the date the payment took place, they do not typically contain as much information as invoices. In contrast to invoices, receipts typically do not contain as much information relating to the customer, such as the customer’s name, due to fraud concerns. Receipts might also contain information relating to return policy and outline any sale of goods rights that have arisen from under the transaction.
In contrast to receipts, a small business owner (and indeed a big business owner) that provides sales invoices will use them to track their finances and cash flow. Their invoice payments will form a large part of their revenue and the use of accounting software that allows business owners to track their invoices has consequently become popular. This is not to say that it is not important to store receipts as both are important in the event of a tax audit and will help you file your taxes and company records correctly.
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The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.