When I first started as a contractor, I remember sending out my first invoice. It felt like a tangible sign that my business was taking off. But as the projects rolled in and the invoices went out, I noticed I had never issued a receipt.
At first, I wondered if I was missing a crucial step. But as I dug deeper, I realized that, in my line of work, receipts aren’t necessary. Invoices, however, are non-negotiable. They ensure that my clients and I were on the same page regarding payments. This got me thinking about how easily people confuse or synonymously use the terms “invoice” and “receipt.”
In this article, I’ll share what both invoices and receipts are so you can understand the differences and know when to use them.
Table of Contents
- Invoice vs. Receipt
- Differences Between an Invoice and a Receipt
- When Are Invoices Issued?
- When Are Receipts Issued?
- Do You Need to Issue Both an Invoice and a Receipt?
- Receipt vs. Invoice Examples
Invoice vs. Receipt
An invoice is a document you issue to request payment for products or services offered to a customer. A receipt is a document that proves a customer has paid for the products or services provided.
Put another way, an invoice says, “Here is a list of the products or services provided, the payment due date, and how to make payment.” A receipt says, “I acknowledge you’ve paid for the products or services I provided.”
Correctly categorizing your invoices and receipts helps distinguish pending payments from settled payments. It also makes it easier to report income accurately when filing taxes.
There might be a lot of confusion between these two, but they’re distinct.
Pro tip: Automate your invoice generation using HubSpot’s free invoicing software. It lets you create, send, and track invoices. It also enables you to generate payment links for HubSpot payments, Stripe, or PayPal. The outcome is a streamlined payment collection process that eliminates manual work.
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Differences Between an Invoice and a Receipt
There are three primary differences I’ve seen between an invoice and a receipt:
- Purpose. An invoice requests payment for a service or product, while a receipt confirms the buyer has paid. This distinctiveness is the basis for the other differences.
- Time of issue. You issue an invoice after delivering the product or service, but the buyer hasn’t paid. You issue a receipt only after the customer has paid.
- Details included. Invoices and receipts contain similar information but include distinct details.
Invoices contain the buyer and seller's contact details, invoice number, payment due date, description, quantity and prices of products and services exchanged, and payment methods.
Here’s an example of an invoice:
Pro tip: Use HubSpot’s free invoice generator to quickly create your own.
Receipts, on the other hand, contain the buyer and seller's contact details, receipt number, transaction date, sales tax, and the description, quantity, and prices of products and services exchanged.
Here’s an example of a receipt:
When Are Invoices Issued?
Invoices request payment. So, you issue them with invoicing software before, not after, payment. Invoices are most commonly used by service businesses operating on a pay-after-service or pay-as-you-go model.
For instance, in my marketing business, I issue an invoice for 50% of the agreed payment before starting a project. For projects with defined milestones, I also issue an invoice upon completing each milestone.
When Are Receipts Issued?
You issue receipts after you’ve received payment for a product or service rendered. So, when you buy french fries from McDonald's or a pair of jeans from a department store, the slip you receive is a receipt, not an invoice.
Ideally, you should issue a receipt every time a customer makes a purchase. This lets you track the payments made. Receipts also benefit customers. They assure them they’ve paid correctly and make it easier to request refunds if they have an issue with their order.
Pro tip: Keep in mind that businesses need receipts to claim tax deductions. So, if you’re a B2B brand, your customers will most likely request receipts.
Do You Need to Issue Both an Invoice and a Receipt?
Legal requirements for invoices and receipts vary by location. In the United States, no federal laws mandate businesses to issue invoices for every sale. Consult a finance or legal professional to understand the regulations in your state or country.
As a general rule, I recommend issuing a receipt for every purchase. If you've already sent an invoice, provide a receipt after payment. This helps you track income accurately and assists customers in maintaining their expense records. To reduce paperwork, some businesses turn invoices into receipts by stamping them as paid.
That said, some businesses don’t provide receipts unless requested. For example, Marc Chavez noted that a Chicago McDonald's outlet only gives receipts upon request, while nearby Oak Lawn outlets offer them automatically. He believes the former aims to save time and paper.
You don’t need to send an invoice for transactions where customers pay upfront or at the point of purchase. For instance, a receipt alone will suffice if you run an online clothing store.
Receipt vs. Invoice Examples
Below is a real-world example of an invoice and receipt for plumbing services offered to Caroline Saunders by Michael Siebel Plumbing.
This example contains all the essential information required in an invoice, including buyer and seller's contact details, invoice number, payment terms and due date, list of services and their prices, and payment method.
I like it includes a payment link for convenient bill payment. Plus, it offers two payment methods to avoid back-and-forth between the company and its client.
This receipt also contains essential information about the buyer and seller. Unlike the invoice, it excludes information about payment terms and due date. But it includes a receipt number, payment method, and payment date.
I like that the receipt also includes the invoice number. This makes it easy to reconcile a receipt with the associated invoice. It also displays the amount payable against the amount paid, clarifying that Caroline paid in full for the services rendered.
Pro tip: If you want to explore more invoice and receipt examples and templates, we have more resources in this post.
Final Words on Invoice vs. Receipts
Invoices and receipts are not synonymous. Invoices request payment, while receipts serve as proof of payment. Businesses typically send invoices when they offer products or services before the customer pays. Many customers expect a receipt, so issue one after every successful sale, even if you have already sent an invoice.
Also, don’t forget that laws governing receipts and invoices vary by location, so I definitely recommend consulting a local expert to learn the best practices for your area.
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