Invoice vs Receipt - What is the difference?
To keep your financial records validated and to the mark, it is critical that enough documentation supports your records.
These documents include purchase orders, invoice documents, bills, receipts, stock reports, monthly statements, and more.
Such documents hold up the company's sales, purchases, exchanges, and returns activities.
Often employees confuse invoices and receipts for being similar documents. Though in a macro sense, these documents are a part of the sales process and have significant differences in what they bring to the table.
Understanding and communicating the difference between invoices and receipts is crucial in keeping the accounting activities in order and preventing last-moment clutter and chaos.
What are Invoices?
A sales invoice is the document the seller sends to its buyer/customer of goods and services.
It acts as proof of sale from the seller’s end, stating the details of goods purchased, quantity and price of the item, taxes, delivery charges, and other specifications.
Invoices inform the buyer of the goods delivered or services rendered and their obligations to pay the invoice total.
In accounting terms, these unpaid invoices are classified as accounts receivable. They are obliged to receive the payments against each invoice upon the due date.
Invoices are the legitimate means of verifying the trade between 2 parties. Therefore, ensuring the invoice mentions all the details is necessary in case of disputes or confusion.
How to write invoices?
Though every company has its format and style for invoice preparation, companies need to address the following areas to standardize all invoices, manually or electronically.
Every company prepares sales invoices according to their methods.
But due to increased digitization in accounting fields, invoices are now prepared through a computerized system.
The software automatically feeds details, and the work left for employees is to verify them.
Related read- Automated invoice processing to better manage cash flow
1. Company details
• Mentions the seller’s details like company name, address, email address, phone number, and website address.
• This section helps identify the seller of goods and contact details allow tracking them down in case of grievance.
2. Buyer information
• Buyer information includes the name of the customer/company, address/office address, phone number, and email address.
3. Invoice number
• This number is the unique identification number on each invoice. Every invoice number differs from one another but in a sequential manner.
• Invoice number helps in differentiating among a large heap of sales invoices.
4. Goods/Services purchased
• The seller mentions the goods purchased quantity delivered against what rate per unit.
• Line item code is also mentioned in some invoices, though it’s not compulsory to add it. Huge corporations use line item codes to categorize invoices.
5. Purchase order number
• Purchase order number should be exactly as mentioned in the purchase order received. This helps companies in identifying which invoice was raised against which PO number.
Related read- Simplify matching invoices to purchase orders
6. Payment terms and taxes
• This section deals with the payment of the invoice. Additionally, the tax rates that are levied on the product.
• It mentions the due date of the invoice number and the payment modes that are supposed to be used.
7. Signature and Stamp
Considered an age-old practice, a handful of companies usually do not sign and stamp the invoices. But to prove the authenticity of the invoice, it’s imperative to sign and stamp and prevent any disparity.
What are receipts?
A receipt document is simply the proof of payment made by the buyer.
It is a document that states the customer has received the goods and accepted them by making the payment according to the invoice sent.
From the accounting perspective, receipts are issued to the buyers as records of sales made and sometimes for inventory purposes.
A bill receipt usually outlines what invoice number the customer has paid, which payment method was used, and whether the payment was paid in whole or part.
Because receipts are considered a valid document for payment, they prove useful when in cases of returns or exchanges.
How to write receipts?
Below are some of the components of a receipt or receipt details.
1. Company information
• Mentions the company's name, address, email address, phone number, and website.
2. Date
• The date is supposed to be when the buyer made the payment to the seller.
3. Items sold
• This section should subtly mention the list of goods or services sold with their quantity and price per unit alongside the invoice total.
• There’s no requirement to add the purchase order number. But the invoice number against which the payment was made should be mentioned.
4. Additional charges
• This should include charges like taxes, delivery rate, handling charges, or any other as decided between the parties.
5. Payment
• This section deals with the mode of payment selected by the customer.
• If a cheque was drawn, the cheque number should be written. If an online transfer was made, the transaction ID needs to be mentioned.
Invoice vs receipt - Are there any similarities?
Invoices and receipts are often regarded as the same term and are used interchangeably.
From a broad standpoint, they do the same functions for a business altogether, but while recording them in accounting books, they are supposed to be held differently.
• Invoices and Receipts are both issued from a common vendor.
• Both documents are used to validate the sale of goods or services.
• They contain the seller’s name, address, and contact details.
• Both of the documents are non-transferable and non-negotiable.
• They have the same information about the trade, i.e., same line item name, number, quantity, and price per unit.
Why is it important to issue invoices and receipts for a business?
Businesses cannot function without maintaining records of the activities that happen all year round. Moreover, creating, issuing, and maintaining these records seems indispensable to ensure the transactions are backed by enough documentation.
Here are the reasons why businesses should issue invoices and receipts for every sale.
1. Record keeping
• Invoices and receipts are the lone proof of the sales. Therefore, maintaining and safeguarding these documents is essential to avoid future mishaps.
• Also, these documents are required at the end of the year-end to prepare financial statements and income tax returns.
2. Legal compliance
• It is mandatory for the seller to issue the invoice document once the buyer collects the goods.
• Issuing an invoice helps in cases of sales returns also.
3. Inventory management
• Maintaining sales invoices and receipt details allows enhanced visibility over the current inventory and predicting how future stock is to be maintained.
Can an invoice serve as a receipt?
Ideally, invoices provide a concrete document for the sale of goods and receipts as the payment for these invoices.
Therefore, issuing invoices and receipt of payment in one document can sometimes be misleading. Hence, it is always advisable to keep invoices and receipts as different instruments.
In some cases, where receipt documents are not issued, it makes it difficult to know whether payment has been made or not.
But, to make this issuing process less complicated, invoices and receipts can be made in the same document. Or the receipt can be attached at the end of the invoice. This way, the buyer need not maintain multiple copies of receipts and invoices.
Difference between an invoice and receipt
Here's how one can easily differentiate between invoices and receipts.
#1 Meaning
• Invoices - Document citing the delivery of goods and services
• Receipts - Document that proves the payment of the purchase
#2 Time of issuance
• Invoices - At the point of sale
• Receipts - At the point of receiving payment
#3 Purpose
• Invoices - Informs about the purchase of goods and money owed
• Receipts - Informs payment has been made for the purchase
Why choose an invoice and receipt management software for your business?
Maintaining paper invoices and receipts is a messy and costly affair for the business.
It involves printing and storing these records while exposing them to the risk of being misplaced or stolen. Not only does this make companies lose their financial records, but it also hampers financial reporting while filling for tax purposes.
With the automation software, creating and storing all accounting records is as easy as ever.
Employees need not wander and juggle between a huge stack of paper invoices. The manual method leads to a huge waste of time writing the invoice and receipt details in various books.
Businesses can escape this cobweb of manual entry systems with Volopay and ditch the traditional way of filing and bookkeeping. Perform all your accounting tasks in one place while saving time and money.
Volopay offers business-wide solutions to all your accounting and financial needs. Our software allows you to create and send digital invoices and receipts with minimal human intervention.
FAQs
Ideally, you cannot. A receipt is required to ensure that you have made the payment for the goods or services. But sometimes, you can claim expenses based on the invoice too.
Yes, both invoice and receipt are required to fully address a purchase made by the buyer.
No, both the invoice and receipt number happen to be different. These are the sequential numbers according to the invoice and receipt number.
Invoices are supposed to be issued at the time of purchase. But there happen to be two invoices - credit invoice and debit invoice. A credit invoice is a refund issued to the customer, while a debit invoice is when you need to increase the invoice amount.
The document is issued when a customer makes full or partial payment of the goods or services purchased.