Invoice vs. Receipt: What’s the Difference?
Accounting may not be your area of expertise. But, as a home service business owner, you do need to know the basics, such as how an invoice compares to a receipt.
Understanding how, when, and why you need to send these documents to customers helps keep your business organized, adds to your professionalism, and allows you to track bills and their associated payments.
Read through this guide to learn how invoices and receipts are different so that you can use them to keep your home service business running smoothly.
Learn about invoices and receipts:
- What’s the difference between an invoice and a receipt?
- Professional invoice example
- Payment receipt example:
- Can you use an invoice as a receipt?
- Does an invoice count as a bill?
- What’s the difference between a purchase order and an invoice?
- Why invoices and receipts are important for your service business
- How to automatically generate invoices
What’s the difference between an invoice and a receipt?
Although some people use the terms “invoice” and “receipt” interchangeably, they’re actually very different.
An invoice is a request for payment. It details important line items related to a job such as:
- A description of the services provided
- The total amount due, including costs for labor and supplies as well as taxes and discounts or deductions
- An invoice number
- A payment due date
- Invoice payment terms, like accepted payment methods and late payment penalties
- Customer details
- Contact information, like the business name and phone number
Invoices can be provided before, during, or after a job has been completed. In the home service industry, invoices are sometimes also referred to as bills.
Professional invoice example:
A receipt is proof of payment. After an invoice or bill has been paid, a receipt is given to a customer detailing the total amount of the payment, when it was made, and which payment method was used. Receipts are provided for any type of payments, including:
- Cash payments
- Cashed checks
- Credit and debit card payments
Receipts are provided immediately after a partial or full payment is made. They can be provided at any point during a job, but only to provide proof of a financial transaction.
Payment receipt example:
Both invoices and receipts are provided to a customer by the home service business.
Can you use an invoice as a receipt?
Because invoices and receipts serve different purposes, you shouldn’t use them interchangeably.
The main difference is that invoices are used to bill customers while receipts are used to confirm a payment made from a customer to your small business.
Does an invoice count as a bill?
An invoice and a bill are the same thing but may be referred to differently based on whether you’re a buyer (customer) or seller (small business owner).
It helps to think of it this way: a service provider sends an invoice to a customer, while the customer receives a bill.
Although it’s the same document, what you call it and the action required depends on whether you’re providing or receiving a service.
READ MORE: How to write an invoice
What’s the difference between a purchase order and an invoice?
A purchase order and an invoice are different documents.
A purchase order is typically used by a small business owner to purchase physical inventory from a vendor. It’s created by a service provider to request the delivery of goods from a supplier, such as lawn fertilizer, chemicals, or plumbing parts.
It details the quantity of goods required as well as how the buyer intends to pay.
An invoice (or bill) is given to a client by a service provider and details a variety of costs, including physical materials, labor, and taxes.
Why invoices and receipts are important for your service business
Invoices and receipts are both important for keeping your service business organized and managing your cash flow.
Invoices help your service business to:
1. Track outstanding payments
Invoices are an essential part of your billing process. Each invoice should include the total amount due and the payment due date.
Tracking when your invoices are sent, when they’re due, and whether they’ve been paid helps you to stay on top of your cash flow. If you have any unpaid invoices, it may be time to take further action by sending a payment reminder.
2. Add to your professionalism
Using a professional invoice template boosts your legitimacy as a business. Your customers want to work with tried and true professionals, and your invoices can say a lot about how put-together you are as a business owner.
Using online invoicing software, you can create invoices that include your logo, customer service information, detailed line items, and more. These give off a much more professional vibe than sending a one-line email or text message asking a client for a random amount of money.
3. Improve your chances of getting paid in full and on time
The more information you give to your clients about how and when to pay, the more likely the transaction will go smoothly.
For example, including the following details in your invoices helps to make your expectations clear and easy to follow:
- The time period in which a client has to pay
- An itemized list of products and services with their associated costs
- Your preferred payment methods, like whether a client can make a cash payment in person
- Whether you offer a discount for early payment
- If you charge fees for late payments
Your invoice ensures that clients know exactly how, when, and why to pay you, leaving little room for confusion or error.
Receipts help your service business to:
1. Document income
While invoices track outstanding amounts, receipts track actual payments. As a home service business owner, you know that what you’re owed and what you’ve been paid can be very different things.
Since receipts are only provided once a payment has been made, they document your actual income. This comes in handy around tax time when you need to provide financial statements because it shows the payments you’ve received, not the ones you’re waiting on.
2. Provide documentation in the event of an issue
Receipts act as proof of purchase, which is useful in the event of a customer issue down the road. That could be a return, complaint, or warranty claim.
This is useful if you sell any physical products, like parts or supplies.
3. Claim business expenses
As a business owner, claiming business expenses on your tax returns reduces the total amount that you owe. And, in order for you to claim business expenses, you’ll need a sales receipt for each item that you plan to write off.
For example, you can claim office supplies, software subscriptions, fuel costs, and a variety of other business-related costs.
Your accountant will need your receipts to complete your tax return, and you may be asked to provide them as proof of purchase if you ever experience a tax audit.
4. Avoid duplicate payments
Receipts aren’t just a way for your clients to confirm a payment was made, they’re also useful for you as a business owner. Once an invoice has been paid, attach a receipt to document that it’s no longer outstanding.
This helps to ensure that you don’t accidentally request the same payment twice, confusing clients and causing an accounting mess.
How to automatically generate invoices
The easiest way to create an invoice is to use an invoice template, especially if you invoice frequently.
An invoice template can help you:
- Create professional-looking invoices for every job
- Help you stay organized and include all necessary information
- Reduce room for error by including mandatory form fields
- Get you paid the proper amount on time
- Help you track rates, prices, hard costs, expenses, and accounts receivable
- Protect your business with payment terms and conditions
This post was originally published in June 2019. It was last updated January 2022.