Invoice vs receipt: What is the key difference that you should know?

Invoices and receipts are part of day-to-day operations for every business.

They’re often used interchangeably but are two distinct documents that are issued at different stages of a sales cycle and serve different purposes.

It’s important to understand the differences, particularly when it comes to preparing your financial records for tax season with the Internal Revenue Service (IRS).

For IRS and tax purposes, you must know the difference between invoice vs receipt.¹

This post will cover the key differences between invoices and receipts.

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Invoice vs receipt: What’s the difference?

In a nutshell:

• An invoice itemizes services or goods provided by a vendor and is an official request for payment.

• A receipt, on the other hand, is confirmation of the buyer’s purchase.

What is an invoice used for?

An invoice is a list of services you have provided to a customer and is sent after the goods or services have been delivered but before payment has been received. Next to each, you should include the price and units (if applicable) associated with the service.

An invoice can be on paper or made and sent electronically as ane-invoice. The main benefit of the e-invoice is that it can be sent abroad without the expense and slow delivery speed of postage.

An invoice does not serve as a receipt. The invoice itself cannot be used as proof of purchase, since the customer hasn’t yet paid it.

There are several components you need to include on any invoice:

• Invoice Number
• Company Information
• Customer Information
• Description of goods/services
• Date of Supply/Invoice
• Amount Payable
• Payment Terms
• Purchase Order Number (if POs are used)
• Payment Instructions

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What is a receipt?

A receipt is proof of purchase and should be issued immediately after payment. It’s a document that proves that money or goods have been received.

Depending on the nature of the goods or service delivered, not all businesses will need to issue an invoice beforehand, but they must provide a receipt.

The receipt, like the invoice, can be printed on paper or sent electronically. Electronic receipts are often used by e-commerce sites as proof of purchase.

Receipts are important for proving company expenses. For example, if your business is US based, but you need to buy particular tools from overseas in Euros, then a receipt can serve as proof of purchase.

Here are the key components of a receipt:

• Company Information
• Transaction Date
• Goods Paid For
• Total Sum Charged

It isn’t uncommon to also include a payment method on the receipt, which details how the customer paid the invoice.

A receipt can also have the customer’s details on it along with an order number if the payment was made against a purchase order.

Key differences between invoice and receipt

To clarify, the main difference between the two is that an invoice is a payment request and a receipt is proof of payment.

However, there are several differences between an invoice and a receipt, such as the following:

• An invoice is issued before a payment, whereas a receipt is issued after it has been made.
• An invoice lets a business owner track their sales numbers.
• A receipt is beneficial for the customer, but also the business, as it acts as proof of payment.
• Whereas the invoice is always sent to the customer, a receipt can go to a customer or a third party.
• An invoice cannot be used to claim expenses, whereas a receipt can. With a full sales receipt, a business owner can claim business expenses as tax deductions. Expenses include any costs you incur that are necessary for the business’ operations.

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🤓 Read more invoicing articles:
Purchase order vs invoice: What key differences should you know? What is an invoice? Clear guide and examples What is a proforma invoice? When and why should you use one? How to pay an invoice

Sources:

1. What kind of records should I keep | Internal Revenue Service

All sources checked 20 October 2021.