As a freelancer or small business owner, you've most likely heard of invoices, bills, and payment receipts, but you might not be aware of the differences between them. These terms can often be used interchangeably in the business world but there are some key differences.
In this blog post, we’ll take a closer look at each of these documents, and explain how they fit into the sales process and how they differ from each other.
What is an invoice?
An invoice is a document issued by a business to their customer to advise them that payment is now due. Invoices are usually issued once the product or service has been supplied, and it is now time for the customer to pay up.
Invoices are legal accounting documents which require certain information to be valid. This includes the business and customer details, an invoice number, the products or services sold, and the payment terms.
What is a bill?
A bill is a general term that can refer to a number of different documents, including an invoice. A bill usually outlines how much the customer owes to the business.
Unlike an invoice, the term “bill” does not refer to a specific sales document. Some people use the term “bill” to describe an invoice from the customer’s end. For instance, a business issues an invoice to a customer, and the customer receives it as a bill.
Therefore, if you are referring to a specific document, you should call it by its official name to avoid confusion (quotation, invoice, proforma invoice, etc.).
What is a payment receipt?
A payment receipt is a document issued from the seller to the buyer once payment has been received. It usually includes the seller’s details, the date, the amount paid, and any remaining balance due.
Payment receipts can be issued for full payments or partial payments. Any time money is transferred, a payment receipt should be issued.
Difference between an invoice, bill, and payment receipt example
The main difference between a payment receipt and an invoice is when they are issued. An invoice is issued prior to receiving payment, while a receipt is issued after receiving payment. A bill does not describe a specific sales document, but usually means an invoice or breakdown of the sale.
For instance, a custom dressmaker has completed a job for a client and has issued an invoice which outlines how much needs to be paid, how it should be paid, and when. Payment terms vary based on each business and industry but are usually between 0-30 days.
The customer receives the invoice and makes a bank transfer as per the payment terms. The next day, the dressmaker receives the money in their bank account and issues a payment receipt to the customer confirming that the money was received.
How can I issue invoices and payment receipts?
Now that you understand the difference between these documents, you may be wondering how you can quickly and easily issue them to your customers.
Some freelancers and small businesses opt to use offline programs like Word or Excel to manually type up their documents. This may work well for you if you only issue the occasional invoice or payment receipt. However, if you issue lots of documents to your clients, then this may take extra time and effort.
Using invoicing software for professional invoices and receipts
Invoicing software can help you with all of your sales documents from initial quotes, to invoices and payment receipts. Invoicing software includes pre-made templates so you just need to enter the details of the sale and email it along to your customer.
Since invoices are legal documents that require certain information to be valid, invoicing software will also ensure that this information is included and your invoices are legally compliant.
Some invoicing software, like Debitoor, can also help you get paid quicker! By connecting a payment provider to your invoicing software, a payment link will appear on your invoice so your customer can pay instantly and securely online. Once paid, you can issue a payment receipt directly from the software.