There are several significant differences between invoices and receipts that as a business owner it’s important to understand. But once you’ve got your head around it all, you’ll find it much easier to maintain good business practices and financial records.
Quite simply, an invoice is sent to request payment for a particular product or service. A receipt, on the other hand, acknowledges that payment has already been made. It acts as a proof of purchase for the customer (like when you get a receipt after paying at the supermarket).
Do I need to keep receipts and invoices for my business?
Recording your business transactions and keeping documents is essential for HMRC compliance.
In practical terms, recording your invoices and receipts correctly will help you organise your business finances. You’ll have a better understanding of how and why money flows in and out of your business, helping it to operate more efficiently.
Why do businesses use invoices and receipts?
Both vendors and buyers benefit from invoices and receipts for the total transparency they offer. They show (or should!) how much money is owed, what for, and what has been paid already.
The right payments, at the right time
Clearly recording payment and billing dates helps to ensure that customers know what they’re being charged for, which avoids unnecessary queries slowing things down. Invoices also make the payment deadline clear!
Likewise, providing receipts makes it clear that payment has been received. It reduces the risk of payment being sent twice – which sounds great in theory, if only you were able to keep it! The reality is that overpayments only generate more admin, and who has time for that?!
Giving a receipt to customers also makes it nice and clear what you’ve taken payment for, and what bills might remain outstanding.
Paying tax correctly
Treat receipts and invoices as the same thing, and you’re likely to struggle when claiming expenses and reporting income when tax time rolls around. Your receipts and invoices show where and why money enters and leaves the business.
This means you know which payments are for allowable expenses, so that you can claim the right amount against your tax bill. If you’re VAT registered then your receipts and invoices will also show where VAT is paid and collected, so you can report this correctly. Nobody wants HMRC calling for a chat, so getting everything set out clearly can seriously help.
It’s also useful (and sometimes a requirement) if you’re supplying goods across a border, so the relevant tax authorities know what tax is due, and where.
Invoices and receipts: The main differences.
Receipts and invoices are quite similar in terms of showing transaction information, so it’s understandable there’s often confusion between the two. Some people even think they’re interchangeable (which they’re really not). There are some key differences between invoices and receipts that you’ll need to be aware of.
- Invoices are essentially a request for payment. Therefore, they are always issued prior to any payments being made. Receipts are given after payment.
- Invoices are legally binding documents that advise the buyer how much is due. A receipt however can act as a proof of ownership because payment has already occurred.
- Invoices are commercial documents that will usually list the goods and services the client must now pay for. Hours of service together with quantities are typically present. A receipt however shows the amount paid and the payment method, which may be different to what is shown on the invoice.
- Invoices are always sent directly to the consumer who needs to pay. A receipt could go to the customer or any other third party as it’s merely proof of payment.
- Invoices can be very useful in tracking the sale of products and services. A receipt only has one primary purpose which again is simply proof of payment.
Handy Tip: Having an accurate, consistent approach to invoicing is a vital part of business accounting, particularly for smaller firms. Once you’ve managed to streamline your invoicing system, it’ll be much easier to plan your finances and how your business will grow. Find out how you can improve the speed and efficiency of your invoicing process with Pandle.
Oh, hello purchase orders
It’s also worth mentioning one more thing here: Don’t confuse invoices and receipts with purchase orders either.
A purchase order is basically a document that the buyer issues to the client or vendor which describes the requested goods or services along with the quantity and price agreed.
How are invoices and receipts presented?
Invoices and receipts tend to follow a different format. Let’s look at this in more detail.
How to format an invoice
Invoices contain the details of both the buyer and the seller. Generally they follow a pretty set formatting pattern, with the vendor’s business name, address and phone number in one of the top corners of the page. On the other side of the page, or somewhere obvious, the details of the customer will also be displayed.
Each invoice will also have its own unique number to identify it. This makes it easier to track invoices and payments as you go along. It also helps in quickly identifying an invoice if there is a dispute or an issue with payment.
In the body of the invoice, specific details should be given about the work that was carried out or the product that is being invoiced for. It’s well worth giving as much detail as possible and itemising the invoice if more than one service or product was issued.
Finally, you should also include any payment terms, such as discounts for paying early or in cash. This should be shown alongside the payment due date and your firm’s bank details if payment is to be paid made by BACS. Other acceptable payments can be shown here, and it should also be clear if any VAT applies.
How to format a receipt
Receipts are usually less detailed than invoices but they are just as important nonetheless. Typically, they contain the name and contact details of the business at the top, alongside the amount that has been paid and the method of payment that was used. The date of payment should also be displayed, although (unlike invoices) details of discounts, unit prices or descriptions may be left off unless requested specifically.
Just as when you visit a shop, most receipts are printed. However, nowadays many receipts are emailed digitally. Make sure you don’t include too much in the way of customer details on a receipt, especially physical copies that tend to get thrown away or left behind. Personal details can lead to identity theft, so keep them to a minimum.
How do I keep everything up to date?
By staying on top of your invoices and receipts you’ll maintain a much better overview of your cashflow. You’ll also have more streamlined accounting processes, offering piece of mind for both yourself and your customers.
With Pandle, you can send personalised invoices to your customers directly from our user-friendly app so freeing up your time for everything else. All of your invoices will be accessible in one place anywhere, any time, allowing you to automate tasks and avoid late payments. Your cash flow will thank you for it!
Ready to get started? Chat to one of the team using the Live Chat button on screen, or sign up for your free Pandle Pro trial today.