Invoice vs. Receipt: What’s the Difference?

Invoice vs. Receipt: What’s the Difference?

If you’re a freelancer, it’s important that you understand the lingo that comes with the territory.

But with so many different words with very similar meanings, like purchase order, invoice, and receipt, it can sometimes be hard to keep them straight: do you send out a purchase order, get a receipt, and then send an invoice? Or do you send your invoice, get a purchase order, and then send out a receipt?

Here, we’re going to clarify the differences between two important parts of the billing and payment process for freelancers: the invoice and the receipt.  

Luckily, the concepts are pretty straightforward, so you’ll be all set to send out professional invoices and receipts by the end of this article.

What Is an Invoice?

The simplest explanation is this: an invoice is a bill. It tells a customer what they ordered, what they owe, and how to pay for all of it.

The slightly more complicated explanation is this: an invoice is an itemized list of products or services that a seller sends to a customer to request payment. The invoice formally establishes an obligation for the client to pay the seller, and it states when and how the payment must be submitted.

Typically, an invoice is sent after the products are delivered or the services are carried out, but invoices can also be used to request payment upfront.

On the seller’s end, invoices can also be used to aid with record keeping, predicting future sales and cash flow, and generally keeping track of what work has been conducted.

What’s Included in an Invoice?

Every seller’s invoice will have its own unique style and layout, but there are some features that all invoices have in common:

  • The word “invoice”: Makes it clear what the document is at a glance.
  • Invoice number: Helps the buyer and seller keep track of the invoice.
  • Business name and contact information: Lets the customer know who the invoice is coming from.
  • Client/customer name and information: States who needs to provide payment.
  • Description of products or services provided: Typically an itemized list of products and services along with a short description and the quantity of each provided.
  • Subtotal: The total due before tax and discounts.
  • Discounts: A list of any discounts and deductions applied to the invoice.
  • Tax information: The tax being charged, i.e. VAT.
  • Total amount due: The total after tax and discounts. Also called the net total.
  • Payment information: Instructions on how payment should be sent (what payment methods are accepted, bank account information, etc.).
  • Payment terms: Payment due date, late payment policy, etc.

What Is a Receipt?

A receipt is a document that provides proof of payment.

Unlike an invoice, which requests payment, a receipt certifies that the vendor has received payment and provides an acknowledgment that the transaction has been completed satisfactorily.  

Additionally, a receipt also provides proof of purchase, which can be kept for tax returns, provided during a tax audit, or simply kept alongside other financial statements for safekeeping.

When making business purchases, small business owners can use receipts when writing purchases off as business expenses for tax purposes.  

What’s Included in a Receipt?

For the most part, receipts are structured very much like invoices but with a reversed purpose: instead of asking for payment, receipts acknowledge that payment was received.

Like invoices, all sales receipts will be slightly different. However, there are some elements that are shared among practically all receipts:

  • The word “receipt”: Makes it clear what the document is.
  • Receipt number: Helps both merchants and buyers keep track of the receipt.
  • Business name and contact information: States who received the payment.
  • Customer name and contact information: States who made the payment.
  • Description of products or services provided: A list of the products and/or services the customer paid for.
  • Subtotal: The before-tax and pre-discount total.
  • Discounts: Description of any discounts or deductions that were applied.
  • Fees: A list of any fees that were applied.
  • Tax information: States how much tax was paid.
  • Total amount paid: States the amount of money that was paid post-tax and after discounts. Also referred to as the net total.
  • Payment method: Notes how the customer paid for the listed goods and services.

Key Takeaways: Invoice vs. Receipt

Invoices and receipts serve similar but opposite purposes.

An invoice is a document that is used to request payment from a buyer.

A receipt, on the other hand, is a document that is used to provide proof that a payment has been received.

Invoices and receipts are typically used hand in hand. First, an invoice is sent to a customer, and after the customer provides payment, a receipt is provided.

Invoicing and sending receipts for completed payments are important business practices because not only do they help you get paid, but they leave a paper trail that can come in handy if you’re ever hit with a tax audit.

Additionally, buyers can also use receipts as proof of purchase that can be used to claim business expenses and lower their tax burdens.

By now, you should have a pretty solid idea of the difference between invoices and receipts.

But knowing is only half the battle. If you want to take your invoicing to the next level, check out Blinksale’s invoicing tools designed especially for freelancers and small teams.

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