As a freelancer, you need to know exactly what is the difference between an invoice and a receipt. When you get into the world of freelancing, it can be hard to get your head around all the different terms while still trying to focus on making money.
Here, you'll get all the answers you need. By the end, you'll know the difference between the two and have confidence going forward when requesting payment and requesting payment receipts.
What is an invoice?
An invoice, most commonly, is a document generated by a seller, after a sale transaction has occurred, that records the product bought by a buyer, the time of purchase, and the cost of the item. When an invoice is generated, it is considered as a demand for payment and includes the mode of payment through which money can be transferred.
There are different types of invoices. For a thorough guide to the different uses of invoices, have a look at our guide to the types of invoices.
What is a receipt?
A receipt can be considered as proof that a financial transaction took place between two parties. It is proof of what the customer paid and that the seller has received the money for an item. These can also be issued between vendors and service providers, between two organizations having business-to-business dealings, or even for stock market transactions.
When to use invoices and receipts
The difference between an invoice and a receipt may seem very small. Both show the buying and selling of a product or service, but there is one major difference that will decide whether you use an invoice or a receipt. An invoice is used to request a payment method at a later date, while a receipt is proof that payment terms have been made.
An invoice should be issued when a customer agrees to pay the business transaction at a later date. You are legally obliged to include all related information on the invoice, like the time of exchange, the money owed, the deadline of payment, mode of payment, etc.
A receipt is a necessity in all exchanges that resulted in payment being sent to your bank account. It just requires signing that the payment has been made, the list of items that were paid for, the date and amount of money. It could also be a simple signing and dating of an invoice to show that it has been paid. A receipt is proof that money came into the business, and is necessary for all financial records, balance sheets, income statements, and even calculating.
When to use invoices as a Business Owner
As a business owner, you need to issue an invoice whenever a service has been rendered and you need the payment to be made in a timely manner. To assure that the other party keeps to their end of the deal, make sure to:
- Sign a contract
- Automate your invoices
- Keep track of the invoices and follow up on them, until you get paid
Your invoice should include: the name and address of your company, contact, the client's name, and number, invoice number and issue date, the amount of payment, the deadline, terms and conditions, a list of your products and services, and even the applicable tax number
When to use receipts
When it comes to receipts, it is better to be safe than sorry. It would be better if you keep all receipts that can show the functions and cash flow of your business. Here are a few items which you should make sure to keep receipts for:
- Inventory that you bought to sell
- All your assets like furniture, vehicles, computer, machinery, etc. should have receipts
- Any advertising that you do
- Any money that is utilized in paying for gas or transport maintenance (for the company)
- Office supplies
- Travel expenses etc
What to Do with A Sales receipt
Sales receipts are a document that shows proof of sale, that the seller has delivered the goods or services and the buyer has paid. This receipt is issued by the seller and is then given to the buyer. These are recorded only when sales and payments happen and you have income for the sale. These receipts need to be recorded and kept safe as they are proof of sales and income and are needed to reconcile your bank balance and cash flow statements.
What to Do with a Payment Receipt
A payment receipt is given to the customer as proof that they have paid, partially or in full, for a set product or service. A payment receipt is also called a ‘receipt for payment.’ These are useful to keep track of money paid and due to a business and are necessary for the correct representation of a company’s balance sheets.
Can an invoice serve as a receipt?
Yes, an invoice can serve as a receipt. An invoice becomes a receipt the moment the payment is made against that invoice and the invoice is signed and dated. To use an invoice as a receipt, it needs to be marked as paid. Commonly, freelancers and businesses send their customers a ‘paid’ version of the invoice as a receipt.
What is the difference between a receipt and an invoice?
An invoice is made against the payment due. No cash exchanges hands, rather the sale or service occurs on credit. A receipt is proof of money being received by the business, whether it is in real-time or against an invoice.
What qualifies as a receipt?
Any legal document that shows a sale or an expense can be considered as a receipt. It should have the legal name of the company, the address, the payment amount, and the time at which the payment was made.
What is the difference between billing and invoicing?
Invoice and billing are both documents used by the seller which describe a sale where the buyer buys a product or a service. There is a vital difference between the two. Bills are used for a one-time upfront payment, especially in the retail industry. They serve as proof that a legal sale occurred. Invoices on the other hand can be a one-time payment by the buyer or can involve a recurring payment. Invoices are sent when goods are sold on credit and no payment is made; they act as a request for that payment.
Is an invoice a sales receipt?
No, an invoice is not the same as a sales receipt. An invoice shows that a sale has occurred but payment is requested at a future date. A sale receipt on the other hand shows when a payment is made for a sale.