Invoice vs Receipt. Do you know the difference?
In business, there are a lot of terms that can be misused or outright confusing. One such is what is an invoice and receipt? More precisely what is the difference between them? Let’s say it this way – you could get penalized if you don’t have your receipts when it is time to do your taxes. Receipts will prove your business expenses.
So that is why it is important to understand how they are different.
The definition of a Receipt
A receipt represents proof of purchase. So, its purpose is to prove that you have bought something from a specific business. Some businesses give a slip of paper for your purchase, while some tend to print a whole page outlining what your order was and the amount paid.
Either way, it is something that you receive at the point of sale. For example, you receive a receipt at the restaurant or when going to the supermarket. Be mindful to always keep your receipts since they are proof for your purchase when you what to note something as your expense in regulating taxes.
What is included on a Receipt?
Firstly, there are always details for your purchase, meaning the name or description of the product or service you have bought and how much money it costs. Then, there is also some other important information included, like the name, address, phone, and store number of the business.
Additionally, when talking about a franchise, there are always store numbers included on every receipt so that they can keep track of where you have bought the item.
And another thing possible, when paying with a card, the receipt usually shows what type of card you have used, for example, MasterCard and the last four digits of the card itself.
Regarding customer details, none of the receipts contains too much information to prevent identity theft. You have probably thrown away a receipt, or just left it on the cash desk instead, right? No worries, since there are no personal details on it. (if you happen to notice a name on it, don’t panic, it is only the cashier’s name).
The format of a Receipt
There is no one standard format for a receipt. However, each one usually looks the same. Also, receipts contain the same information in pretty much the same order or style.
Usually, the format is the following: You have the business details at the top, most often centralized. Then comes the information for the purchase made, the amount of money, and lastly, the method of payment – cash or card usually at the right bottom.
We must note that this depends on your location since the order can be different in another country.
Nowadays most receipts are printed out in well established businesses. However, many businesses still issue handwritten receipts (ex. open markets or small businesses). And most of the time, we don’t even collect receipts from informal businesses like traders, hawkers, mama put to mention a few.
The definition of an Invoice
An invoice represents a document created to request the payment from a customer. Usually, this is also referred to as a bill. Some businesses send invoices via mail, or may also use some other electronic means to send them.
One difference from the receipt is that despite the information about the seller, they also include personal details about the buyer. The purpose of making an invoice is to tell the customer how much they owe to the business.
When do you issue an Invoice?
Businesses issue an invoice in various situations. One example when you are ordering a product online, you would likely receive your invoice via mail. Also, other businesses, especially the supplying industry, provide invoices to customers that are ordering from them via phone, whatsapp or online.
The invoice serves as proof that an order has been made and details of who has made it including the amount it costs. Usually, you also receive an invoice in need of advanced payment.
When do you pay an Invoice?
This is another difference between a Receipt and an Invoice. The receipts mean that the purchase has been already completed, while invoices allow you to pay for a product in the future. Usually, the business that is sending the invoice determines the time range in which the invoice needs to be paid (it may vary from 30 to 60 days).
This may depend on the industry as well, so sometimes you may have only a few days or a week from issuance to pay. However that is noted on the invoice, so the customers are always aware of the due date.
The format of an Invoice
Some countries may have set a specific way of invoicing format, or that is a legally mandated format that the companies must hold on to, like for example in the Nigeria the details that should be included consist of the invoice date, VAT ID number of the customer, company name, customer name, details for the product itself and the delivery.
In Africa, there are some tools that you can use, like dillali, that enable you to create professional and legally binding invoices so you don’t have to worry about the legal changes or missing any required information.
Some companies also use their invoices as a part of marketing. They may add a coupon on it, or a discount that you can get if you pay your invoice at a certain time.
Countless businesses are using invoices for their products and services, and we are sure you will get things cleared out when we tell you that all of your bills for your household are invoiced, including the water bill, electricity bill, cable bill, etc. After you pay the invoice, usually you receive a receipt to tell that the purchase is now completed.
The importance of Invoices
As we already mentioned that receipts are essential to keep track during tax season, lets discuss a bit how businesses can use invoices and why should they keep them.
By keeping your invoices, you can always see and check the sales that you have made, and also which ones are already paid and which ones are late. Additionally, your accountants need all issued invoices to keep track of all your income and expenses as well as prepare statement of accounts for the business.
This is the reason why so many businesses are now using digital accounting and shifting to electronic invoices. Usually, the invoicing platforms offer you a dashboard where you can keep track of all of your invoices in one place.
This means you can see who has paid and who owes you money. Sales reports are included, so you can always have a record of your revenue. Additionally, you can view the expenses you have for the services you provide, so you can keep a record of that as well.
Have you tried dillali? You can now run your business with ease.
To sum up
Lastly, just a quick summary of the main differences between invoices and receipts:
-Invoices are issued before the sale vs. Receipts are issued after
-With an invoice, you demand payment vs. Receipts are proof of payment
-With invoices you keep track of sold products vs. Receipts acknowledge payment
-Invoices go to the customer vs. Receipts go to the customer or 3rd party
Knowing these key differences help you in organizing your business financials better.
Get organized with an invoicing tool
Now that you are familiar with the differences between an invoice and a receipt, why not try to simplify your invoicing and implement digital invoices for your business.
Get all of this and much more with dillali, designed for entrepreneurs and freelancers. Dillali is free to use. Register here and see how you can grow your business.
Hope you find these guidelines helpful. No matter if you are just starting or you are already running your business, staying focused and organized will help your business grow.