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Running a business

Understanding the difference between invoices and receipts

An invoice is issued to collect payment from customers, and a sales receipt documents proof of payment a customer has made to a seller.

While these documents have some similarities, they are used for different purposes. This quick guide will help answer your questions about invoices and receipts so you can use them appropriately within your business.

What is the difference between an invoice and a receipt?

While invoices and receipts have some similarities, they are used at different stages of the sales process and document different information. The main difference is that invoices are issued before a business has received payment from a customer, and a receipt is issued after payment has been collected.

An invoice is used when a business has completed a customer’s order and needs to collect payment for the goods or services provided.

Key points to understand about invoices include:

  • Invoices are issued to collect payment after a business delivers goods or services to its customers.
  • The seller sends an invoice to the buyer to notify the buyer that payment is due.
  • Invoices are more commonly used by service providers and during business-to-business (B2B) transactions.

A receipt is used as a proof of payment when a customer makes a payment to a business for goods or services.

Key points to understand about receipts include:

  • A business provides receipts to its customers as a record of a sale.
  • Receipts outline when a transaction took place, how much a customer has paid and which payment methods the customer used to make the payment. They also list the items or services the customer paid for.
  • Receipts help buyers keep track of payments they have made.
  • In many cases, customers will need a receipt to make returns to a business. Because receipts indicate proof of purchase, businesses can use them to verify a transaction.
  • Because receipts are proof of a customer’s payment, they are issued by businesses of all types. Businesses should generally issue their customers receipts for any transactions made.

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Invoice vs receipt example

Does an invoice mean you’ve been paid?

An invoice does not indicate that a business has been paid for goods or services provided to its customers. An invoice is created by a business to notify its customers of a payment that is or will be due to the business. Invoices outline which goods and services a customer needs to pay for, as well as the terms of payment, including when the payment is due.

A receipt is issued as a proof of payment; as such, you should only issue a receipt to a customer if they have provided payment for a transaction. Since a receipt is used as proof of payment, you may choose to require receipts for returns as part of your return policy.

Can an invoice serve as a receipt?

Businesses should not use invoices and receipts interchangeably. Because invoices are used to collect payments and receipts are used as a proof of payment, substituting one for the other should be avoided.

As an example of why you should avoid using invoices and receipts interchangeably, consider the return process. In this case, the lack of a receipt would make it difficult for the business to confirm the customer had already paid for the product.

Can I issue an invoice after payment?

Invoices should be issued before a customer has made a payment.

In some cases, businesses may need to issue specific types of invoices after a customer has paid; these are called credit invoices and debit invoices. Credit invoices are used when you need to issue a refund to a client. Debit invoices are used to collect payment when you need to increase the amount a client owes your business.

Key takeaways

Invoices and receipts have similarities, but understanding their differences will help you use them the right way within your business.

Keeping track of invoices is an important part of getting paid on time and keeping your books clean. Your payment processor should provide you with the tools you need to create and track your invoices, issue receipts and reconcile payments. Organising these tasks in one place can streamline your processes and give you more time to focus on your business.

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