Various types of documents or records are commonly generated among buyers and sellers of goods and services during the course of transacting business. Participants in financial transactions engage in an agreement that may involve verbal consumer activity too much more formal commercial affairs that entail a formal written purchase cycle. Two of the common instruments used in documenting or organizing these dealings include invoices and receipts.
What is an Invoice?
An invoice represents a request for compensation, such as for products sold or services provided, and serves as a record or type of documentation for reporting purposes, reference at tax time, etc. Merchants, vendors, or other sellers create an invoice that formally requests payment from a client, customer, or another purchaser. For example, a landscaping contractor may present a final invoice upon completion of a project for a homeowner. A product manufacturer or wholesaler might send an invoice for products they have shipped or delivered to a retail store.
An invoice document typically contains the name and contact information of the buyer and seller, the date, due date, a unique invoice number, some description of the product or service, and the amount due. Other information commonly found on invoices includes a line-item summary of products or services, any applicable discounts and sales tax, the name of the salesperson, customer account number, and more. In today’s digital environment, many invoices are electronically generated and sent; however, traditionally invoices were physical (paper) documents sent through the mail or perhaps sent via fax machine.
Invoices represent a call-to-action that generally specify the optional or acceptable ways for making a payment. For example, they may have a ‘remit to’ mailing address, a link to a website for paying electronically, a payment platform such as PayPal, and others.
In the business-to-business realm, invoices often are directed between the company’s accounting departments such as “Accounts Payable” and “Accounts Receivable” and contain payment terms other than simply “payable upon receipt.” For example, an invoice requesting payment within 30 days is often specified as Net 30 terms.
Understanding Receipts
A receipt represents some form of written documentation or other acknowledgment of a transaction between a buyer and seller. As consumers, we normally receive a receipt whenever we dine at a restaurant, purchase something from a store or online retailer, etc. Most sellers of goods and providers of services generate a sales receipt or payment receipt whenever finalizing key transactions.
Unlike invoices, a sales receipt does not represent a call-to-action or request or require any further response. Receipts range from a very rudimentary handwritten paper document issued by a secondhand store to those making donations, to more detailed printed receipts from grocery stores, or electronic documents automatically transmitted by internet retailers.
Receipts typically contain basic information such as the date and time of the transaction, item(s) purchased or services rendered, the method of payment such as cash or credit card, applicable tax, and prices. Depending on the nature of the transaction, a receipt may represent a critical piece of proof or evidence for confirming payment or a requirement for returning a defective product, or for validating ownership when seeking warranty coverage.
Merchants, vendors, and other sellers sometimes generate copies of receipts for their internal purposes. Examples might include calculating sales, creating financial statements, managing inventory, or reference during tax preparation. Consumers often must retain receipts to present with claims for reimbursement from their employer or documentation of tax-deductible expenses or donations.
The Key Differences Between Invoices and Receipts
- Sellers issue invoices as active requests for payment, while receipts simply document or confirm that a payment was made
- An invoice indicates any potential payment options, while a receipt specifies the mode of payment that was used
- Invoices are often of primary importance to a seller and receipts to a buyer
- Unlike invoices, sales receipts generally are acceptable documentation for expense reimbursement, tax deductions, product returns, and warranty claim coverage
Invoices and receipts both play a vital role in facilitating and documenting sales and purchasing transactions. These tools serve as important ways for consumers and businesses to achieve financial organization.
