Invoice vs. Receipt: A Guide for Service Business Owners
To keep your accounts receivable process running smoothly, you should be using receipts and invoices. And if you’re thinking they’re the same thing, think again.
The main difference between an invoice and receipt is that an invoice is sent to request a payment from a client, while a receipt is sent after a payment is made.
But there’s more to it than just that. Learn what each one is for, and how and when to use them to improve your record keeping, get paid faster, and improve customer experience in this guide.
Receipt vs. invoice—what you need to know:
What is an invoice?
An invoice is a request for payment. It tells a client how much they owe you, when it’s due, and which payment methods you accept.
Invoices typically include these details:
- The customer’s name and contact information, as well as the job site address
- Your business’s name, address, phone number, website, and email address
- A description of the services you provided
- The total amount due, including taxes, fees, discounts, and deposits
- A due date
- A unique invoice number
- Payment terms, such as how to pay you and when late fees apply
Invoices can be sent before, during, or after a job.
For example, if you’ve never worked with a particular client before or the job requires you to purchase expensive materials upfront, you might send an invoice to collect a deposit before work begins.
For recurring work, like seasonal lawn care, you could send an invoice at the end of each month.
And with straightforward, one-off jobs, like appliance repair or handyman services, you would provide an invoice to the client as soon as the work was done.
READ MORE: When to send an invoice to get paid faster
Does an invoice count as a bill?
Yes, an invoice and a bill are the same thing. But how they’re referred to changes based on whether you’re sending or receiving one.
For example, a service provider sends an invoice, while a customer receives a bill.
What is a receipt?
A receipt is proof of payment. It tells a client you received the money they paid you in exchange for a service.
Paid invoice receipts can resemble invoices but with three main differences. They must include:
- The total amount of the payment
- When it was made
- Which payment method was used (e.g., cash, credit card, or check)
Receipts can be provided after partial or full payment is made and can be sent at any point during a job as long as a financial transaction has occurred.
For example, you should send a payment confirmation to a client if they pay a deposit before a job begins, if they make a payment during ongoing work, or once they pay an invoice after a job is complete.
Can you use an invoice as a receipt?
No, an invoice shouldn’t be used as a receipt because it doesn’t confirm that a payment was made.
Receipts are important documents for both you and your clients. They show a client their payment to you went through, and they help you to keep accurate accounting records by confirming that an invoice was paid.
Why are receipts and invoices important for service businesses?
In a service business, receipts and invoices each play an important role in keeping you organized and managing cash flow.
Use invoices to:
1. Track outstanding payments
Until an invoice has been paid in full, it counts as an outstanding invoice. In your accounting process, tracking outstanding invoices helps you to know which clients owe you money and whether they’re overdue so you can send a payment reminder.
Keeping tabs on outstanding invoices is key in managing cash flow, helping you to stay on top of late payments so you know what you have coming in and who you’ll have to follow up with.
2. Look more professional
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 invoicing software like Jobber, you can create invoices that include your logo, contact information, job details, payment terms, and more. These make a much better impression than a one-line email or text requesting a random lump sum.
3. Get paid faster and in full
If you don’t provide clients with invoices, they won’t know how much to pay you, when it’s due, or which payment methods you accept. This increases your chances of not getting paid at all or having to deal with short-paid invoices.
But, if you create detailed invoices that leave no room for confusion, clients are more likely to follow through and pay you on time and in full.
READ MORE: How to collect payment from a customer to get paid faster
Use receipts to:
1. Document income
Where invoices tell you who owes you money, receipts tell you who’s made a payment. This shows you exactly how much you’ve made and what kind of cash flow you have to work with. And it comes in handy at tax time when you need to calculate and document your income.
Knowing how much you have coming in also gives you a chance to keep an eye on your profit margin and markup to ensure you’re pricing your services effectively.
2. Provide proof of purchase
Receipts act as proof of purchase in case of issues down the road, like a warranty claim, complaint, or return. This is especially useful if you sell parts or supplies, since they may not be associated with an invoice that details their make, model, price, or purchase date.
3. Claim business expenses
Receipts aren’t just important for your clients.
As a business owner, claiming business expenses on your tax returns reduces the total amount you owe. This means you’ll need a receipt for every business purchase you make, such as fuel costs, materials, cell phone bills, software subscriptions, and office supplies.
You shouldn’t claim an expense without a receipt because if you’re ever audited, you’ll be asked to provide proof of purchase to validate your claim.
4. Avoid duplicate payments
When a client makes a payment to you, it’s important to record it internally by adding a payment receipt to their file. Otherwise, you risk accidentally requesting payment again, confusing clients and causing an accounting mess.
Receipts also provide records to clients so they don’t make a second payment to you in error, causing another administrative headache for you to handle.
How to make invoices
You can either make invoices manually or use invoicing software to do it for you.
If you make them manually, start by creating a template in Microsoft Word or Google Docs. Then, input the job details based on the initial quote you provided to the client and add in any other services, expenses, fees, discounts, or payments.
When it’s ready, save a copy as a PDF and send it to the client via email. Make sure to note how much is due and when so you can track it for accounting and cash flow purposes.
Pro Tip: Before you send your invoice, double-check the client information, job details, and email address. Manual invoices are subject to human error, making them more likely to have typos and incorrect information.
Using invoicing software like Jobber helps you prevent mishaps by automatically pulling job and client information from your quotes into your invoices.
Plus, it tracks outstanding invoices for you, saving you from having to do it yourself. And if a client misses a payment, Jobber can send them a reminder without you having to lift a finger.
How to make receipts
As with invoices, you have two options when it comes to making receipts. You can make them yourself, or use a tool or software to do it for you.
If you decide to make them yourself, create a template, input the client’s payment information, and send it to the client’s email address as soon as a payment is made.
Pro Tip: Don’t forget to keep a copy for yourself to attach to the client’s file so you have a record for tax purposes.
Using Jobber’s payment software, electronic receipts are automatically sent to clients and attached to their accounts as soon as an invoice is paid.
Adding invoices and receipts to your workflow
Receipts and invoices both have a place in your workflow to help keep you organized, oversee cash flow, and track payments.
If you’re looking to add them to your accounting process, consider a workflow that looks like this:
Service request > quote > invoice > payment > receipt
That way, you’ll find it easier to keep your business running smoothly and impress your customers with your professionalism.
Jobber can help you manage your entire workflow, from beginning to end, saving you time and money and preventing you from human error, like accidentally requesting the same payment twice or forgetting to deduct a deposit from an invoice.
Originally published in June 2019. Last updated on October 16th, 2024.