Invoices vs Receipts For Your Business: What’s The Difference?
Documenting every financial transaction in your business is key to efficient and effective financial management. Without accurate records, you may experience cash flow issues, decreased profits, and even a lack of trust from customers. Two popular documents used to track financial transactions are invoices and receipts; however, they serve different purposes. Knowing when to use each one is essential for maintaining accurate records.
This article will explore the differences between invoices and receipts to help you run your business as efficiently as possible.
What Is An Invoice?
This is a document sent by a seller to a buyer detailing the services or products provided and providing instructions on how to pay. One of the most important features of an invoice is that it serves as proof that you’ve offered goods or services to a customer and are awaiting payment in return. Traditionally, invoices are sent through the mail or fax to the customer, depending on their preference. But with new technologies, invoices are commonly sent via email and can be paid electronically.
Electronic invoices are very convenient in any business, as they can be sent instantly without paper or postage costs. All you need is effective time tracking and invoicing software that can generate an invoice, track invoices, and payments, and even remind customers when their invoice is due.
What Is A Receipt?
A receipt is a document that confirms payment and is usually issued by the seller to the buyer. It serves as an acknowledgment that goods or services have been exchanged for money and provides proof of purchase. A receipt can also include additional information, such as details about warranties, returns, and refund policies.
Like invoices, receipts can be sent electronically; however, they are generally printed and given to the customer in person. Though giving out a receipt to a customer is not a legal requirement, having a receipting system in place is recommended, as it provides an additional layer of security for you and your customers.
Invoices vs Receipts: The Ultimate Difference
1. Due Date
Companies and businesses working with contractors and freelancers use invoices to establish payment terms. Therefore, the due date for an invoice is usually specified in the document. Net 30 and Net 60 are common due date terms, meaning that the payment is due 30 or 60 days after the invoice has been sent. There is no due date for a receipt, as the payment was already made at the time of issuing it.
Note: A seasoned contractor can ask for advanced payment before starting a project. Therefore, if you’re dealing with contractors, getting a receipt for their payment is recommended as proof of an agreement between the two parties.
Who Uses It?
Employees and freelancers send invoices to their employers or clients for the services they provide. On the other hand, business owners and salespersons provide receipts to their customers when they pay for goods or services.
What Do Invoices And Receipts Include?
An invoice contains detailed information such as;
- Contact information of both parties
- The item list and description
- Payment instructions (including due date)
- Terms and conditions
- An invoice number
- Unique business ID
A receipt, on the other hand, includes the following;
- Business name and contact information,
- The item list and description,
- Payment date and amount,
- Unique payment ID.
- Total amount sold as well as tax and fees
Which One Is Right For Your Business?
Invoices and receipts both serve important purposes in business. Invoices are used to establish payment terms and demand a payment, while receipts are issued after payment has been made. Therefore, as a business owner, incorporating both invoices and receipts into your operations is recommended. Invoices should be used to track customer payments, while receipts should be issued when payment is made. This way, you’ll maintain an accurate record of all transactions for accounting purposes.
Conclusion
As you can see, the difference between invoices and receipts is clear. Each serves a different purpose and should be used in the right situation. Having both of these documents in place with your business, with the addition of legal document templates, will help you have a clear bookkeeping record and protect you from any misunderstandings or discrepancies. The question is, are you ready to make the most of your invoices and receipts? If not, now is the perfect time to get started.
